United States venture capital (VC) funding reached $55.6 billion in the second quarter, marking the highest quarterly total in two years. According to PitchBook data, the funding raised by AI companies in the second quarter was 47% higher than in the first quarter of the year, which recorded $37.8 billion.
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The significant jump in VC funding can be directly linked to large funding of AI related companies. In May, xAi, an AI start-up founded by Elon Musk, raised $6 billion in a series B funding round in an attempt to compete against OpenAI, the developer of ChatGPT. Another notable deal included CoreWeave, which raised $1.1 billion.
Venture capital funding rebounds from the 2023 slump
The renewed interest in AI technology and its high potential for high ROI has brought back VC funding, which had been on the decline in the previous year. US VC funding had been falling progressively from the high of $97.5 billion in the fourth quarter of 2021. It dipped to $35.4 billion in the second quarter of 2023 because of high interest rates and a slow exit market. However, the recent capital injection in AI startups means that the funding has picked up again, with investors more interested in companies working on AI foundation models and applications such as coding assistance to productivity tools.
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Nevertheless, exits continue to be problematic, even as deal activity increases. Small deals generated around $23.6 billion in exit value in Q2 that is less than $37.8 billion as recorded in Q1. The initial public offering (IPO) market remains rather weak with very few venture capital-backed firms going public. Rubrik, a cloud data management firm is one among the few that can be excluded.
Analysts call for increased tech IPOs to boost VC returns
PitchBook analyst Kyle Stanford stated that for VC returns to increase, more large technology companies must list on the stock exchange at a quicker pace. The slow IPO market is still a burden on emerging VC fund managers as they face problems from the lack of successful cases. In the first half of the year, only $37.4 billion of new funds were raised, with large companies such as Andreessen Horowitz closing new funds above $7 billion.
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According to recent research by Mountside Ventures, about 40% of the surveyed corporate venture capital (CVCs) are specifically interested in B2B firms that offer solutions in the AI and ML space. The survey, conducted among 100 global CVC investors with over £20 billion in assets and investments in over 1,200 startups and VCs, reveals a strategic focus on these innovative technologies.
“What is clear from this report is that the availability of corporate funding to startups has never been higher.” said Tom Savage, investment associate at Mountside Ventures.
According to the report, CVCs’ engagement in deals has significantly grown from one in every ten deals in 2010 to one in every four by 2024.
Cryptopolitan Reporting by Brenda Kanana
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