US VENTURE capital funding surged to US$55.6 billion in the second quarter, marking the highest quarterly total in two years, according to PitchBook data published on Wednesday (Jul 3).
The latest figure shows a 47 per cent jump from the US$37.8 billion US startups raised in the first quarter, largely driven by significant investments in artificial-intelligence companies, including US$6 billion raised by Elon Musk’s xAI and US$1.1 billion raised by CoreWeave.
The ongoing excitement around building AI technology since the launch of OpenAI’s ChatGPT chatbot has fuelled the recovery of venture capital (VC) funding as investors place substantial bets on startups. The hope is that revenue from AI adoption will yield significant returns.
“Investors assign a premium to everything AI – the capital intensity of most AI businesses requires outsized funding,” said Casber Wang, partner at Sapphire Ventures.
“As we discover stronger commercial use cases for AI, more AI companies are showing real revenue.”
After reaching a record high US$97.5 billion in the fourth quarter of 2021, US VC funding had been steadily declining. It hit a recent low of US$35.4 billion in the second quarter of 2023, amid a high interest-rate environment and a sluggish exit market. The recent influx of capital into AI startups has reversed the downward trend, prompting more investors to double down on AI foundation model companies as well as applications from code generation to productivity tools.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Despite the increase in deal activity, exits remain challenging, the data shows, as small deals generated about US$23.6 billion in exit value in the second quarter this year, down from US$37.8 billion in the first quarter. The initial public offering market has struggled to gain momentum, even after some VC-backed companies, such as cloud data management company Rubrik, went public.
“For VC returns to see an increase, large tech companies must begin to list publicly at a higher pace than we have seen through the first half of the year,” Pitchbook analyst Kyle Stanford said in a statement.
Emerging VC fund managers may have already felt the pressure of a lack of proven returns, with only US$37.4 billion in commitments raised through the first half of the year. Large firms dominated the fundraising, with Andreessen Horowitz alone closing new funds with more than US$7 billion. REUTERS
