This technology lays the foundation for future investment opportunities. Companies that use GenAI responsibly will enjoy sustained success and potentially break out of the boom-and-bust cycles that have characterized most innovations. While there will inevitably be winners and losers, the recovery period between life-changing innovations will become increasingly shorter – a trend we have seen particularly in recent technology history.

PCs expand access for businesses and consumers (1980s)

In the 1980s, the proliferation of the personal computer, spurred by the development of the microchip, enabled consumers and businesses to better organize information. Between 1980 and 1983, the enormous profit potential in the growing software technology market led to $739 million in venture capital being poured into a variety of computer startups seeking to drive innovation. This also encouraged the creation of new venture capital firms in the United States – from 92 active venture capital firms managing $4.1 billion in 1980 to nearly 400 active firms managing $28.6 billion by the end of the 1980s, according to figures from the National Venture Capital Association.

Market decline: The Black Monday stock market crash in October 1987 slowed the computer boom. The crash made it harder for technology companies to raise money and generate revenue.

The spread of the Internet opens a new era of commerce (late 1990s–2001)

As the economy recovered from the computer and hard drive crisis, the Internet emerged as a medium for commerce and social interaction based on innovations in personal computers. Networked PCs revolutionized the way businesses operated and paved the way for the dot-com boom of the late 1990s and the growth of e-commerce.

Entrepreneurs created websites to sell products, build and promote new businesses, streamline processes, and share information more efficiently. The Internet has broken down barriers to entry, reached international markets, and enabled companies of all sizes to reach consumers directly.

A wave of venture capital funding supported the growth of this new medium and allowed online innovation to flourish. Investments in venture-backed companies peaked in 2000, led by $24 billion invested in software. This also paved the way for large technology companies that became cornerstones of today’s economy.

Market decline: The lack of sustainable and profitable business models as well as significant overvaluations caused the dot-com bubble to burst in 2001.

Debut of the smartphone and the explosion of social and mobile technology (2005–2021)

The introduction of smartphones and faster and better internet connections enabled the rise of mobile technologies and apps. As smartphones became ubiquitous, virtually every industry adopted mobile and digital technologies, opening the door for the emergence of the sharing economy.

Many successful companies emerged that allowed people to share almost anything. The proliferation of sharing apps and services coincided with the 2008 financial crisis and caused people to look for alternative ways to generate income and save money.

At the same time, low interest rates as well as advances in computing power and cloud-based technology encouraged the creation of more than 50,000 VC-backed companies by 2021, with the firms raising $341 billion in VC funds. The number of unicorn startups with valuations over $1 billion skyrocketed. This era was also marked by hyper-competition, with so much money flowing into the space from VCs that firms offered free trials to prospective customers to improve their market share.

Market decline: Post-COVID market volatility caused a course correction in the industry. Many companies grew too quickly, hired employees and expanded into business lines that did not deliver tangible results. Significant shifts in investor priorities and revaluations also stopped the free flow of private capital.

GenAI Exuberance (2022 to present)

In the first quarter of 2024, deal volume fell to its lowest level since 2012 as investors closely scrutinized value propositions. Companies in the GenAI space were the exception to this rule. Without funding for AI-related companies, the $32.8 billion in venture capital raised by companies in the first quarter of 2024 would have been significantly lower.

GenAI has the potential to usher in a significant era of growth in almost every industry. While many companies have been developing GenAI use cases and applications for years, the technology is still relatively new and is driving large investments in startups.

The potential impacts of this technology include:

• An inevitable overexposure of GenAI in the market as investors develop a first-mover advantage mentality, thus stimulating a significant inflow of capital into these companies.
• The proliferation of the GenAI ecosystem comes amid a broader funding effort focused on companies that provide software, microchips, datasets and other elements essential to the functioning and development of artificial intelligence.
• A significant provision of venture capital to energy companies that can provide more sustainable energy sources to meet GenAI’s massive electricity needs.
• However, the transformative potential of AI also poses significant risks if misused. This will prompt companies and government agencies to place greater focus on the responsible use of GenAI.

Despite the general enthusiasm, there are concerns about the sustainability of the current wave of funding for GenAI. Overinvestment in this technology could lead to a further market collapse if the products coming to market are not as innovative as expected. However, historical patterns point to a likely recovery and eventual success, as demonstrated by the technological evolution of both the computer and internet industries.

After the bull market of the past few years, entrepreneurs and investors continue to face challenges. However, history shows that each cycle provides a new foundation for venture capitalists to recover faster and come back even stronger by capitalizing on new opportunities.

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