US start-ups are raising more cash than at any point since 2021 thanks to investor bullishness about artificial intelligence, but the venture capital market has tilted sharply towards funding a handful of huge private tech companies.
More than $30bn has been invested into fledgling groups already this quarter, according to PitchBook data. A further $50bn of fundraising is also in train, as venture capitalists work on a series of major deals involving OpenAI, Safe Superintelligence and defence tech start-up Anduril.
The fervour over AI has led investors to spend at their fastest rate since the market’s peak in 2021, a period in which $358bn flooded into tech groups, saddling many with unrealistic valuations.
But VC groups believe this investment cycle will be different. “AI is a transformative force that makes these companies better,” said Hemant Taneja, chief executive of General Catalyst, one of Silicon Valley’s largest venture firms.
“The way to think about it is ‘can these businesses reasonably grow 10x from where they are?’ The answer with all of these is yes, so they are reasonably priced,” he added.
After a two-year slump, US fundraising leapt to about $80bn in the last quarter of 2024, according to data from PitchBook. That represented the best fourth quarter since 2021. But just six large deals — involving OpenAI, xAI, Databricks and others — accounted for 40 per cent of that total, said Kyle Stanford, director of research at PitchBook
“It's a very elite group of companies that are commanding the VC investment,” he added.
On the basis of deals already closed and those expected to do so in the coming weeks, the first quarter of this year is set to see similar levels of investment — which would make it the best first quarter for fundraising since 2022.
