Last Quarter in AI (Q3 2022)

It might be a new year, but we're still scarred fascinated by Quarter 3 of 2022. And if you're involved in AI startups, here's why you should be too.

Like a nice kosher steak, take everything we say with some salt and satire ;)

• I used to see unicorns 🦄

• Early-stage startups have the upper hand 💪

• Your exit plan might have just exited 👋

• Is AI moving to Seattle? ⛈️

• You 💩 on my cake. Now what?

• What we're reading

I used to see unicorns 🦄

I saw unicorns when I was a wee lad (6 months ago). I would lay in bed looking at my poster of Brian Chesky and imagine that I was in Silicon Valley, chugging a 6-pack of red bull and coding until my fingers were down to the bone...

Unfortunately, not all dreams come true. Especially not in the third quarter of 2022. Those dreams were utterly crushed because only one AI unicorn was created worldwide.

• Q1, 2022: 14 new AI unicorns 📈

• Q2, 2022: 12 new AI unicorns 📈

• Q3, 2022: 1 new AI unicorn (did the Fed kill all the unicorns?) 💀

This dramatic figure is a 5-year low for newly created unicorns in AI.

You might want to reply to your high school friend on Facebook (or Meta, or whatever it's called now) who has that "billion-dollar idea" and tell him to try again next quarter.

Early-stage startups have the upper hand 💪

Overall investing is down significantly this year and quarter. But AI companies at the seed and early stages aren't hit as hard as you may think.

Early-stage AI startups dominated the second quarter with 65% of the overall deals.Mid-stage and Late-stage lagged at 18% and 9%, respectively.

Given these statistics, it looks like investors believe that the economic downturn may be short enough to allow these innovative startups to succeed and thrive on the rebound of the economy.

It's like Warren Buffet says, "Hold the bag, paperhands".

Patience + Runway = Profit

Your exit plan might have just exited 👋

Congrats on your successful AI business. Good luck getting rid of it.

The bad news: In the third quarter, there was a 54% drop in M&A for AI businesses compared to the previous quarter.

The good-ish news: In the third quarter there were about 45 M&A, 4 IPOs, and 3 SPACs for AI companies. These numbers are similar to Q1 2021 and before.

So your AI nail clippers business won't be acquired for as much as it would have during last year's boom. The ideal worst-case scenario is the figures returning to pre-pandemic numbers.

Question for you: Do you think the rising popularity of GPT-3 (and soon, GPT-4) will make it easier or harder for AI businesses to exit? Answer us here

Is AI moving to Seattle? ⛈️

Under the rainy and gray skies of Seattle, where Microsoft and Amazon employees drive back and forth from Starbucks to Costco, the AI startup scene has been quietly booming.

Around the US, we've seen a 40% decrease in funding for AI startups in the third quarter. But there is a silver lining...

🍵 Boston: AI funding is at an 8-quarter low (Q3 at $498 million)

🗽New York: AI funding is at a 7-quarter low (Q3 at $462 million)

👩‍💻Silicon Valley: 59% decrease since last quarter (Q3 at $1.8 billion)

☔Seattle: 220% INCREASE to $248 million in Q3. From 8 deals to 15 deals.

Yes, that's an increase. Could Seattle be the safe haven for AI startups if the market continues down this path?

You 💩 on my cake. Now what?

Well first off, please don't eat the cake.

Okay, so you have a unicorn startup idea for an AI toothbrush with Alexa™️ built in. Cause when my mouth is full of toothpaste I wish I could talk with a smart assistant. Great f*cking idea, pal.

Funding is harder to come by, the opportunities for exits are shrinking, and now you might have to move to Seattle. I've truly ruined your day.

So is all hope lost? Well, not really. There's a lot that you could benefit from.

It might be harder to raise money, but it's still possible. Investors are being cautious with where they put money, but they're still taking bets on early-stage startups with long-term potential.

It might be harder to sell your business, but if you have the available runway, you can take this time to perfect your product and build a strong team (good talent might be ripe for the picking if layoffs continue).

And if all else fails, move to Seattle. Pack a jacket. 🌧️

What we're reading

State of AI Q3’22 Report by CB Insights. This is where we got most of our statistics for this newsletter. Check it out for extensive details! This is focused on AI startups.

North American Startup Funding Shrank Over 50% In Q3, Led By Late-Stage Declines. Great overview for all startups in North America.

That's everything.

Send us cool AI stuff on Twitter – we're always looking for new stories. Until then ✌🏼