The COVID-19 pandemic, which started in late 2019 and spread quickly around the world in 2020, had a big effect on the world of venture capital (VC) investment. Funding for new businesses was not always stable. For example, private market financing was on track to hit $77 billion in the first three months of 2020. But this was 16% less than the last three months of 2019. But the AI (artificial intelligence) field was very different. AI startups not only made it through the initial shock to the market, but they also often got more money faster because investors believed in AI’s long-term potential and the need for digital transformation. This article goes into great detail about how COVID-19 affected funding for AI startups all over the world in a way that makes it easy to understand. It looks at how geography, deal stage dynamics, and how investors think change over time.
History and Method
This analysis uses data from CB Insights, Crunchbase, Statista, and peer-reviewed literature to make sure that the findings are solid and can be checked. These are some important numbers:
Money goes to AI startups all over the world every year from 2019 to 2023.
Every three months, the funding changes.
Where the cash is
Dividing up by the stage of the deal (seed, early stage, late stage)
To reduce reporting biases, the data were compared to several sources. For instance, CB Insights says that investments in AI around the world hit an all-time high in 2021, doubling from 2020 levels. Crunchbase says that funding for AI projects in 2024 was more than 80% higher than it was in 2023. Quarterly reports, like CB Insights’ Q1 2023 report and Crunchbase’s 2024 analysis, show how funding patterns changed during waves of the pandemic and as the economy as a whole changed.
Amazon Web Services, Inc.
1. The baseline was 2018–2019, before the pandemic. In 2018, venture capitalists around the world put about $20 billion into AI. This showed that interest was growing, but the market was still new.
The amount of money went up to $26.6 billion in 2019 because of deep learning and business use.
This baseline sets the mood for the start of 2020. Investors were starting to see AI as a field with a lot of room to grow that could change the game, but getting money for new businesses was about to become very hard.
2. The first shock of the pandemic: Q1–Q2 2020
In January 2020, venture funding as a whole went down. Funding from the private market fell to $77 billion, which is 16% less than it was in the fourth quarter of 2019.
AI Sector Resilience & Growth Full Year 2020: AI startups raised $73.8 billion, which is a huge 40% more than the $26.6 billion they raised in 2019. This isn’t what the rest of the economy is doing.
Reasons:
Digital Acceleration: Businesses had to go online because of the lockdowns. This made AI-powered automation, telemedicine, and tools for working together from a distance more important.
Late-Stage Focus: Investors didn’t want to take as many risks in a market that was changing quickly, so most of the money went to Series B and later rounds in 2020.
3. The peak and boom of the pandemic: In 2021, the world spent $119 billion on AI, which is more than twice as much as in 2020. This was the most it had ever been.
Mega-Rounds Surge: The number of rounds worth more than $100 million almost tripled, and a few AI “unicorns” raised rounds worth billions of dollars.
Geographic Concentration:
In 2021, the US got more than 60% of all the money spent on AI in the world.
China and Europe: Their stocks went up, but some people weren’t as happy because they didn’t know the rules.
The rise of AI business models and the huge demand from investors for “digital transformation” plays during a global crisis both helped this boom happen.
4. The market will cool off and fix itself between 2022 and 2023.
2022: The plateau and the first signs of a drop in total funding People think the number is $100 billion, which is a little less than in 2021 but still a lot higher than it was before the pandemic.
Why:
Interest rates and inflation: It was harder to make deals later on because it cost more to borrow money.
Exit Drought: The IPO and M&A markets slowed down, making it harder for venture capitalists to get money.
There will be a bigger drop in 2023. The total amount of money was $42.5 billion, which is 10% less than last year and the same as in 2020.
In the first three months of 2023, AI funding fell to $5.4 billion, which is 43% less than the previous three months. This was the lowest total for a quarter since the first quarter of 2018.
Investors have changed: they are now more interested in profitability and unit economics than just growth. This makes due diligence harder and rounds smaller.
5. Changes in the industry and location
Trends in the US vs. the World: US Dominance It keeps going, with a share of more than 50% in both the boom and correction phases.
Europe: It was strong, especially in AI for healthcare and sustainability, thanks to EU tech funding programs.
According to the Financial Times, venture capital funding in the Asia-Pacific region fell by more than 40% in 2023, reaching its lowest level in nine years. But AI was still a good thing in South Korea and Singapore.
Changing how sectors work
Biotech and health care AI: In 2021, there were record investments ($29.2 billion), but they fell until 2023, when clinical validation cycles got longer.
Enterprise Automation: Interest stayed steady, with mid-stage rounds going to use cases in logistics and manufacturing.
Generative AI: It got a lot of attention in late 2022 and early 2023. It made up almost 30% of all AI funding by the middle of 2023.
6. Important Things That Change How Money Works
Definition of FactorMood of the MarketAt first, people were more willing to take risks with digital games because of the pandemic, but as uncertainty in the economy grew, they became less willing to do so.
Rules and LawsTalks about AI ethics and data privacy slowed down some funding, especially in Europe and China.
Exit SettingLater-stage investments were less appealing because there were fewer mergers and acquisitions and initial public offerings (IPOs). Some venture capitalists made money by doing secondary transactions.
Corporate Venture ArmsIn 2021, more corporate VC investments helped mega-rounds, but a lot of them put new commitments on hold in 2023 to save money.
Grants and Public Funding: Government COVID relief packages and digital transformation grants helped AI hubs grow, especially in EU and U.S. federal programs.
7. What this means for people who put money into AI and start AI companies
Watch traction and unit economics closely.
Startups need to show clear ways to make money or strong defenses against competitors in order to get high valuations.
Different places for spreading out
Berlin, Paris, and Singapore are examples of ecosystems outside of North America that are offering good incentives. This means that you don’t have to depend on U.S. VC as much.
Partnerships with a purpose
Early partnerships with businesses help show that AI solutions work and give them time to grow because it is getting harder to get pure-play VC funding.
Set the rules
You can avoid compliance problems and get grant money that is focused on rules by taking steps to protect data privacy, robustness, and explainability ahead of time.
8. Looking ahead: Recovery in late-stage deals: As the markets settle down, Series C+ funding will likely rise again in 2025, especially for AI companies with proven business models.
Investing in AI Infrastructure: Startups that are making basic AI tools like MLOps and model optimization are likely to get money from government AI compute projects.
ESG and AI Ethics: New trends in impact investing could bring in more money for AI applications in healthcare, climate change, and education that are good for people.
Final thoughts
The COVID-19 pandemic changed the way people paid for AI startups. Before the pandemic, things were moving quickly, and they kept moving quickly in 2021 because investors believed in AI’s strategic value and the need for digital transformation. But the economy got worse in 2022–2023, which caused a market correction. This showed how important it is to have clear revenue models, growth that lasts, and the ability to see what regulations will do. During this time, we learned a lot about how important it is for both founders and investors to be open-minded, have strong unit economics, and put money into a lot of different areas. After the pandemic, the AI funding ecosystem will get bigger. In a market that is becoming more competitive, stakeholders who use these insights will have the best chance of success.
People often ask these questions
Q: Did the pandemic make it harder for new AI companies to get money?
A: No. In early 2020, there was less money available for new businesses in general. That year, though, funding for AI startups went up by 40% because there was a need for digital acceleration.
Q: What year did AI get the most money during COVID?
A: The world spent $119 billion on AI in 2021, which is more than twice what it spent in 2020.
Q: What changed in the way money was given out in 2023?
Funding for AI went down to $42.5 billion, which is about the same as it was before the pandemic. The total for the first quarter of 2023 was $5.4 billion, which is the lowest since 2018.
Q: What areas were hit the hardest?
A: In 2023, venture funding in the Asia-Pacific region fell by more than 40%, reaching its lowest level in nine years. Funding in Europe and the U.S. stayed strong, especially for healthcare and AI that makes things happen.
Q: What do business owners need to do right now?
A: You need to show clear unit economics, work with other businesses, and make sure you follow the rules if you want to get selective capital in a market that is cautious.
References
- CB Insights, State of AI Trends 2021: A new global funding record — funding doubled compared to 2020. Available at: https://www.cbinsights.com/research/report/ai-trends-2021/
- Hispanic Executive, AI Start-Ups Are Raising Billions of VC Dollars, July 2020.
- Crunchbase News, Global Funding Data Analysis: AI EOY 2024, January 2025.
- Edge Delta, AI Startup Statistics 2024, June 2023.
- CB Insights, State of Artificial Intelligence Report Q1 2023 (PDF).
- Financial Times, Asia-Pacific start-ups adapt to drop in VC funding, May 2024.
- The Wall Street Journal, Digital-Health Venture Investment Rises, January 2024.
- Wikipedia, History of Artificial Intelligence
