AI Boosts US Venture Capital to 2-year High, Data Shows

U.S. venture capital funding reached $55.6 billion in the second quarter, the largest in two years, according to PitchBook figures released Wednesday

The most recent figure indicates a 47% increase from the $37.8 billion U.S. entrepreneurs raised in the first quarter.

This increase was primarily attributed to substantial investments in artificial intelligence companies, such as $6 billion raised by Elon Musk’s xAI and $1.1 billion raised by CoreWeave).

The recovery of venture capital (VC) funding has been fueled by the ongoing enthusiasm of investors regarding the development and implementation of AI technology, which has the potential to generate substantial returns.

U.S. venture capital funding has been consistently declining since it reached a record high of $97.5 billion in the fourth quarter of 2021. In the second quarter of 2023, it reached a recent low of $35.4 billion, influenced by a passive exit market and a high interest rate environment.

The recent infusion of capital into AI startups has reversed the downward trend, prompting additional investors to increase their investments in AI foundation model companies and applications from code generation. This has opened a new chapter in productivity tools.

The data indicates that exits continue to be difficult despite the increase in deal activity. In the second quarter of this year, small transactions generated an exit value of approximately $23.6 billion, a decrease from the $37.8 billion generated in the first quarter.

Even after some VC-backed companies, such as cloud data management company Rubrik (RBRK.N), went public, the initial public offering market struggled to acquire momentum.

In a statement, Pitchbook analyst Kyle Stanford stated that for VC returns to increase, significant tech companies must begin to list publicly faster than we have observed in the first half of the year.

The pressure of a lack of proven returns may have already been felt by emerging VC fund managers, as only $37.4 billion in commitments was raised through the first half of the year.

Large firms primarily conducted the fundraising, with Andreessen Horowitz alone raising over $7 billion in new funds.