FILE PHOTO: Words reading "Artificial intelligence AI", miniature of robot and toy hand are pictured in this illustration taken December 14, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
(Reuters) - Artificial intelligence startups have contributed significantly to the recovery of U.S. venture capital funding from market lows, with the total capital raised in 2024 nearly 30% higher year-on-year, according to PitchBook data released on Tuesday.
AI startups also captured a record 46.4% of the total $209 billion raised last year, compared to less than 10% a decade earlier.
The enthusiasm for AI technology, largely sparked by the breakout success of OpenAI’s ChatGPT since late 2022, has helped revive venture capital funding after companies sought to establish true valuations in the post zero-interest-rate environment.
From foundation models to applications, AI has captured both investors' imaginations and their money. Outsized funding rounds by AI companies, many of which remain unprofitable, such as $6.6 billion for OpenAI and $12 billion for Elon Musk's xAI, underline investor optimism about the sector's potential.
But analysts say it is uncertain whether the enthusiasm, especially for foundation model firms that require substantial capital for computing power and talent, will be sustained.
"The AI/LLM companies did enjoy a historically rich funding environment. Most raised multiple rounds at exponentially higher valuations last year. They will need to smash very significant business milestones this year to continue enjoying unlimited access to infinity capital," said James Cross, managing director at Franklin Venture Partners.
Among venture capital funds some $76 billion was raised in 2024, the lowest in five years, with major funds like Andreessen Horowitz and General Catalyst securing major pieces of the pie.
Exits also remain challenging. Exit value in 2024 was $149.2 billion, above the seven-year low of $120 billion in 2023, but a fraction of 2021’s $841.5 billion.
The IPO market did not recover as quickly as investors had hoped, though some year-end listings such as ServiceTitan helped rekindle some optimism. The incoming administration of U.S. President-elect Donald Trump, with tech executives' involvement and tech and business friendly policies, is expected to set the stage for a renewed M&A and IPO market.
"With the caveat that 2024 and 2023 were so anemic with exits, it's hard not to see upside from there," said Brijesh Jeevarathnam, global head of fund investments at Adam Street Partners, who expects more VC-backed companies to be listed in the second half of 2025.
(Reporting by Krystal Hu in New York; Editing by Kate Mayberry)
