Venture Funding Up, Deal Number Down As OpenAI Dwarfs 1Q Competition

The good news for venture capital funding in 2025's first quarter was that investment in dollar terms went up dramatically. The bad news, unless you were part of a very select few including OpenAI, Anthropic and some other big tech companies focused on AI, is that the number of deals was down significantly. 

The implication is that concentration in tech, and specifically AI continues to tighten. Even though prices are coming down and performance is improving, the scale required for impactful AI development favors the biggest companies. JL

Marc Vartabedian reports in the Wall Street Journal:

The massive $40 billion fundraise by OpenAI in the closing days of the first quarter powered much of the overall gain for the U.S. venture market. Excluding the round, the quarter’s deal value was roughly on a par with previous periods in the past couple of years. The number of deals, meanwhile, plummeted, dropping by a quarter from the same period a year ago. A dearth of exits has continued to deflate the venture market. “There’s a huge amount of money going to a small number of  companies. Everyone’s trying to get into the same deals.”

Venture capitalists opened their wallets to start the year, investing more in startups than in any quarter since 2021. But the spending spree was focused on artificial intelligence companies—particularly ChatGPT maker OpenAI.

The massive $40 billion fundraise by OpenAI in the closing days of the first quarter powered much of the overall gain for the U.S. venture market. Excluding the round, the quarter’s deal value was roughly on a par with previous periods in the past couple of years. 

U.S. venture commitments last quarter jumped 116% to $91.5 billion from the same quarter a year ago, according to a report from analytics provider PitchBook Data and the National Venture Capital Association, a trade group. The quarterly figure also eclipsed the $77.2 billion raised by U.S. startups during last year’s fourth quarter.

 

The number of deals, meanwhile, plummeted, dropping by a quarter from the same period a year ago, according to the data.

A dearth of exits has continued to deflate the venture market. Initial public offerings, a primary way venture investors generate outsize returns, have been few.

Investor capital continued to coalesce around AI technology, a trend that’s been under way for the last couple of years, but which reached a fever pitch last quarter. AI accounted for a record 71% of the capital venture investors committed last quarter, up from 62% in the prior quarter, according to the PitchBook-NVCA report.  

“There’s a huge amount of money going to a small number of companies,” said Kyle Stanford, the lead U.S. venture capital research analyst at PitchBook. “Everyone else is still having a really challenging time.”    

And the focus on AI is intense. 

Aydin Senkut, the founder and managing partner of venture firm Felicis, said competitive deals attract up to a dozen term sheets from prospective lead investors. A year ago, those deals might have seen just a handful of term sheets, he said. 

“Everyone’s trying to get into the same deals,” Senkut said, adding that competition for AI startups has driven up deal sizes and valuations.

 

Felicis, which is based San Francisco and Menlo Park, Calif., made nearly twice as many deals last quarter as in the first quarter of 2024, mostly centered on AI. Driving the AI frenzy, Senkut said, is a belief that enterprise-tech buyers will open their budgets for the new technology, boosting startups’ annual recurring revenue, a key business metric investors track.

In January, Felicis co-led a $15 million seed funding round with Lightspeed Venture Partners for Fremont, Calif.-based AI data startup Observo AI. In March, Felicis led a $17 million seed round for AI agent startup Browser Use.

Larry P. Naughton, an attorney at the law firm of Mintz Levin Cohn Ferris Glovsky & Popeo, said an expected surge in startup deals under the new U.S. administration hasn’t materialized. He worked on nearly 10 deals last quarter, he said, roughly on a par with previous quarters in recent years. 

Still, hot companies, particularly in the AI field, are whipping up investor interest, he said. 

“I think people want to do deals, but they’re nervous,” Naughton said. “But when a company checks all the boxes, investors can get pretty aggressive to win the deal.”