Recent Venture Deals Show AI Valuations May Be Cooling
Valuations of generative artificial intelligence startups appear to be coming down—slightly.
The latest example is Synthesia, which helps companies create AI videos. It’s raising $150 million in funding at a valuation of $2.1 billion after the investment, double its valuation from 17 months ago, according to a person involved in the deal. While the valuation may seem high, it’s actually far lower than valuations many startups were getting earlier this year and last year, as a multiple of their revenue.
Synthesia is generating more than $70 million in annual recurring revenue, according to the person involved in the deal, which implies it is currently generating at least $6 million in revenue per month. That means the new valuation would be 30 times the startup’s forward revenue. Its revenue growth rate couldn’t be learned.
By comparison, a year ago, forward revenue multiples closer to 100 seemed commonplace. At the start of the year, for instance, eight prominent generative AI funding deals gave startups an average forward revenue multiple of 83.
Last week, two other AI-related startups that do business with OpenAI were nearing equity financing deals that would value them at roughly $2 billion, or around 50 times their forward revenue. OpenAI’s own valuation multiple on forward revenue was recently between 30 and 40 in a recent deal, but that’s to be expected of a company whose $150 billion valuation is higher than those of most public companies.
Part of the apparent valuation comedown may reflect intensifying competition. In AI video, major developers such as OpenAI and Google are building competing products, and there are at least 16 AI video startup rivals, according to the Generative AI Database. One of the startups, Runway, recently signed a high-profile deal to use content from movie studio Lionsgate to develop its video models.
Founded in 2017, Synthesia was one of the earliest beneficiaries of the rise of generative AI technology in recent years. Unlike some AI app developers, Synthesia develops its own video generation models based on diffusion, a type of machine learning model. It also differs from AI video rivals because it sells its product primarily to businesses rather than to individuals or video producers.
Customers use Synthesia to create videos using human avatars of their choosing. The AI avatar can read from a script to train salespeople or update employees on new benefits, for instance. Some customers, such as German sales tech firm Doculife, also use the technology to produce video demonstrations of their products that they post on their consumer websites.
With Synthesia’s product, customers can write text and record their own voice, which the AI avatar then uses for the video. The company has a free and paid version of its product with tiered subscription prices based on how many AI avatars a customer wants to make or how many minutes of video they want to create per year. The company is focusing on medium to large enterprises, and says its customers include Zoom, Spirit Airlines and Xerox.
The AI avatar and video field has become more crowded since Synthesia’s earlier days. Up-and-comers such as Pika Labs and HeyGen have raised hundreds of millions in funding in the last two years. (HeyGen’s valuation multiple on forward revenue was 22 as of March, but that likely reflected a discount due to the startup’s potentially problematic ties to China.)
London-based Synthesia, which will have a higher valuation than both if the round is closed, has previously raised $150 million in funding rounds led by Accel, Kleiner Perkins and FirstMark.
Venture capital firm New Enterprise Associates has agreed to lead the new funding round in Synthesia, the person involved in the deal said. Spokespeople for Synthesia and NEA declined to comment.
The deal would continue NEA’s spree of AI investments. The firm has previously led or co-led investment rounds in startups including search engine Perplexity and Japanese AI developer Sakana.
NEA also led an investment in another AI video startup, Genmo, in October. Venture firms have increasingly invested in rivals within the same generative AI sector.