AI Is Capturing 40% of VC Funding, 50% of Mega-Deals This Year

AI continues to dominate venture capital investment in the mid-second quarter of 2025.

But the absence of public market exit opportunities combined with the concentration of focus on this one segment of tech may be still be depressing results somewhat. Though many argue that AI and tech are becoming synonymous much as mobile phones once did so that the concept of concentration is becoming obsolete, those with longer memories believe that this will inevitably result in overfunding of marginal startups and lead to a shake out. This is, of course, the nature of tech investing, so, for the moment, is not generating as much concern as is the prospect of a tariff-induced bond rout and recession. JL

Ari Levy reports in CNBC:

Venture capital firms focused on AI are driving much of the growth in the startup market, while companies in other areas are struggling to raise cash. 40% of the total amount raised by U.S. venture funds last year was from funds that “list AI as a focus,” up from 10% in 2021. AI megadeals — rounds of $100 million or greater — represented half of the money raised in the megadeal category.  “There is no meaningful uptick for companies not leveraging AI." For the broader market, exit activity remains tight. With so much capital deployed to resource-intensive AI companies and a dearth of exits leaving venture firms short on returns, there’s not much left for other startups as is “evident in the uptick in ‘Zombiecorns’ (vs unicorns) those with poor revenue growth and unit economics.”

Venture capital firms focused on artificial intelligence are driving much of the growth in the startup market, while companies in other areas are struggling to raise cash, according to a report from Silicon Valley Bank.

About 40% of the total amount raised by U.S. venture funds last year was from funds that “list AI as a focus,” SVB said in its “State of enterprise software” report published on Tuesday. That’s up from 10% in 2021. AI companies accounted for 45% of U.S. venture investment in enterprise software, jumping from 9% in 2022.

The dollars from AI megadeals — rounds of $100 million or greater — represented about half of all the money raised in the overall megadeal category. That’s a group that includes OpenAI and Anthropic.

“Exclude AI investment and the story changes,” the SVB report said. “There is no meaningful uptick for companies not leveraging AI, with investment from this group essentially flat for the last year.”

The challenge for the broader market is that exit activity remains tight, a theme that’s been in place since soaring inflation in late 2021 led to rising interest rates and a move out of risk.

Many investors were bullish that President Donald Trump’s return to the White House would reinvigorate the startup economy due to the prospect of lower taxes and less regulation, but the aggressive tariff policy announced in early April led several companies to delay planned IPOs.

The tech IPO market is showing signs of picking back up.

 

Trading platform eToro

 popped in its Nasdaq debut last week, and digital health company Hinge Health is preparing to go public in the coming days. AI infrastructure provider CoreWeave reported 420% revenue growth in its first earnings release as a public company on Wednesday, leading to a 56% surge for the week in the company’s stock price.

“A recovery in exits is essential to reinvigorate returns and fuel the next cycle of expansion,” wrote SVB, which is now a division of First Citizens Bank. SVB collapsed in early 2023 after the bank’s clients withdrew billions from their accounts in the face of the Federal Reserve’s interest rate hikes.

While CoreWeave’s IPO represented a big win for venture investors, there aren’t many other examples of pure-play AI bets that have proven lucrative so far.

OpenAI, Anthropic and other high-valued AI names like Perplexity and Scale AI have shown no indication that an IPO is on the horizon, and the companies are too high-priced to have many potential suitors.

They also require continued investment in the billions of dollars to fund big infrastructure purchases and the costs of running massive AI workloads.

With so much capital deployed to resource-intensive companies in AI and with a dearth of exits leaving venture firms short on returns, there’s not much money left for startups in other markets.

“Many run the risk of ending up in no man’s land,” SVB said. “This is evident in the uptick in ‘Zombiecorns’ — those with poor revenue growth and unit economics.”