AI deals lift US venture capital funding to highest level in two years, data shows By Reuters

By Crystal Ho

(Reuters) – U.S. venture capital funding jumped to $55.6 billion in the second quarter, the highest quarterly total in two years, according to data from PitchBook released on Wednesday.

The latest figure represents a 47% jump from the $37.8 billion raised by U.S. startups in the first quarter, largely due to big investments in AI companies, including $6 billion raised by Elon Musk’s xAI and $1.1 billion raised by CoreWeave.

Continued investor enthusiasm for building and adopting AI technology, which could deliver significant returns, has fueled a recovery in venture capital funding.

After hitting an all-time high of $97.5 billion in Q4 2021, U.S. venture capital funding has been on a steady decline, most recently hitting a low of $35.4 billion in Q2 2023, amid a high interest rate environment and a slow exit market.

The recent influx of capital into AI startups has reversed the downward trend, prompting more investors to double down on AI enterprise model companies as well as applications from code generation to productivity tools.

Despite the increased deal activity, exits remain tough, the data shows, with smaller deals generating about $23.6 billion in exit value in the second quarter of this year, down from $37.8 billion in the first quarter. The IPO market has struggled to gain traction, even after some venture-backed companies, such as cloud data management company Rubric, went public.

“In order to increase venture capital returns, big tech companies need to go public at a higher pace than we saw during the first half of the year,” Kyle Stanford, an analyst at PitchBook, said in a statement.

Venture capital fund managers may already be feeling the pinch of a lack of proven returns, with just $37.4 billion in commitments raised in the first half of the year. Large firms dominated the fundraising, with Andreessen Horowitz alone closing more than $7 billion in new funds.