AI companies set for consolidation as they graduate from fundraising to exit

AI companies continued to dominate the global investment landscape in 2024, receiving almost a third of global venture funding  – more than any other sector.

The total AI investment figure, measured at over $100 billion, was higher than any other year in the past decade.

As a greater number of AI companies mature and reach the growth stage in the next two years, supported by increased investment levels, larger competitors will begin weighing up the possibility of acquisitions or mergers to achieve prominence in key areas.

According to Victor Basta, Managing Partner at Artis Partners, the sell-side M&A and growth financing specialists for technology companies, founders that understand how to cultivate a close network of buyers and position themselves to potential acquirers stand to benefit from bumper AI valuations.

Basta said: “2024 was a landmark year for AI investment, with the rise of large language models (LLMs) and GenAI triggering a wave of new companies and a mass injection of capital.

A second phase is on the horizon, as large companies look to leverage AI within their organisations at scale. Achieving this integration requires qualified software partners, something that we’re seeing sparingly despite the record AI funding to date.

“So far investment has been divided between two key areas. The first is infrastructure, with unprecedented computing power and data centre capacity required to continue scaling. The other is applications, where growth stage companies are creating applications on top of evolving LLMs.

“This second group, in sectors as diverse as managing development processes and financial analysis, have all innovated at record speed to enable AI to be used across the spectrum of business requirements. This mirrors the way the internet spawned a new generation of vendors, many of which have gone on to become some of the largest companies in the world today.

“For founders and investors in AI-driven applications companies, the roadmap to exit is already clear. Many are securing scarce AI talent to build market-leading positions within a fraction of the time it would have taken 10 years ago.

“In the next 2-3 years a growing number will be acquired as traditional software and technology vendors look to fast-track their own roll-out of AI-based applications, inevitably leading to a spate of high-value exits that could begin as early as this year.

“What is different this time around is sheer speed. AI-based applications companies can go from startup to three-figure exit in far less time than the traditional 6-8 years historically required.”

Basta concluded: “Where AI innovators can separate themselves from the swathe of similar companies that exist in a concentrated market is by understanding the opportunity in front of them and preparing well in advance.

“Growing with the goal of a strategic exit in sight is a long-proven approach to achieving an outstanding exit. Entering an exit planning phase early, while taking time to position a business and cultivate buyer interest, broadly yields exceptional outcomes, repeatedly. This means beginning the exit planning phase at an early stage, taking time to identify potential buyers and stress-testing business plans.”