AI startup funding hit record in L.A. area last quarter. Who got the most?

Nov. 8, 2024 3 AM PT

The Bay Area has long held the title for attracting the most venture capital funding in the nation, and that naturally includes the hot market for artificial intelligence startups. After all, San Francisco is home to some of the most prominent AI players, including ChatGPT maker OpenAI.

But the Greater L.A. area is growing its presence in this space. The region broke a record in the third quarter, capturing $1.8 billion in VC investment for AI startups with a total of 31 deals, according to a new report by research firm CB Insights. L.A. ranked as the second-biggest market for AI investments, up from the second quarter, in which it ranked behind Silicon Valley, New York and Boston.

The big bump came mostly from a single deal: a $1.5-billion funding round for Costa Mesa-based defense technology firm Anduril Industries, the report said. The deal, which was announced in August, was led by Founders Fund and Sands Capital. The round valued the seven-year-old business at $14 billion.

Anduril, which manufactures autonomous weapons systems, including submarine drones, has said it would use the additional investment “to increase hiring, enhance processes, upgrade tooling, increase resiliency in its supply chain and expand infrastructure.” The company, co-founded by entrepreneur Palmer Luckey, has signed more than $1 billion in public contracts with the U.S. and allied governments. His company and other tech businesses that serve the defense industry are expected to get a boost from the incoming Trump administration.

For years, L.A. has been working to build itself as a major home for innovative technology, even at one point marketing the region as “Silicon Beach.” Some hope that AI can help boost Southern California as a tech destination, especially with applications in areas such as manufacturing, entertainment and healthcare.

“L.A. is definitely becoming a serious tech hub,” said Ivan Nikkhoo, a managing partner with Navigate Ventures, adding that the area has plenty of schools providing engineering talent and a lot of networking events. “All the elements are there.”

While Los Angeles is the epicenter of entertainment, where AI is expected to have serious ramifications, much of the recent tech investment was focused on other industries, including healthcare.

Startups in the L.A. region that raised significant capital in the quarter included Regard, a business that is offering an AI-powered clinical insights platform for doctors. The firm raised $61 million. Another healthcare-based company, Pearl, which creates artificial intelligence tools to help read dental patient X-rays, raised $58 million — which the company says is the biggest investment ever in dental AI.

Pictor Labs, a West Los Angeles-based startup spun off from the UCLA engineering school, raised $30 million in the third quarter, bringing its total venture capital investment so far to about $49 million. Pictor Labs uses AI to quickly analyze tissue samples digitally. The startup says it could save pathology labs significant time and resources, as well as reduce labs’ footprint in toxic reagents.

“It shows the strong interest and support of our investors for AI-driven solutions, particularly in the healthcare sector,” said Pictor Labs Chief Executive Yair Rivenson. The funding will help grow the company’s 24-member staff and accelerate its product development, Rivenson said.

AI startups globally saw the number of deals increase to 1,245 in the third quarter, up 24% from the previous quarter, indicating investor interest remains strong in the category, according to CB Insights. Overall venture deals declined 10% compared with the previous quarter, the research firm said. In the L.A. area, venture capital investments bucked national trends, rising 38% compared with the second quarter.

The U.S. market captured 68% of the global venture capital funding in AI companies, with Silicon Valley taking up roughly half of that amount.

Hollywood studios are in discussion with companies such as OpenAI to potentially license video footage to train AI models. And last month, L.A. residents got a sneak peek at what that could look like at a generative AI film competition in Culver City.

The so-called Culver Cup competition, which was hosted by Amazon’s AWS Startups and L.A.-based tech firm FBRC.ai, showcased eight films that were created with AI tools. The winning film was a narrative that explored how food helped an elderly woman with dementia remember her life with her late husband. Judges noted that the top films honed in on truly human stories.

AI is particularly controversial in Hollywood, where entertainment industry unions have fought hard for protections against digital automation that could kill jobs.

“People are really fearful about what they don’t know,” said Todd Terrazas, co-founder of FBRC.ai. “Having these types of showcases help show people what is possible today with these tools.”

Terrazas said he has noticed more investments in the area’s AI startups during the last two years. L.A. has an edge over other cities’ AI communities in entertainment, media, aerospace, manufacturing and gaming, he said.

“I think it’s really us leaning into our strengths with the industries that are prominent here in Los Angeles and doubling down on building these new startups,” he said.

There will also be an AI International Film Festival, screening around 20 short films, held at the Los Feliz Theatre next month.