While US startups have raised more cash than ever since 2021 thanks to the bullishness of investors on artificial intelligence, the venture capital market is leaning sharply towards funding a handful of huge private, high-tech companies.
More than $300 billion has already been invested in fledgling groups this quarter, according to data from Pitchbook. Another $5 billion fundraiser is also on the train as venture capitalists are working on a series of major deals, including Openai, Safe Superintelligence and Defense Tech startup Anduril.
The enthusiasm for AI has led investors to spend at the fastest rate since the market peak in 2021.
However, the VC Group believes this investment cycle is different. “AI is the transformational power that improves these companies,” says Hemant Taneja, CEO of General Catalyst, one of Silicon Valley’s largest ventures.
“The way to think about it is, ‘Can these businesses grow 10 times more reasonably from where they are?’ All of these answers are yes, so they’re reasonably priced,” he added.
According to Pitchbook data, US funding jumped to around $800 billion in the last quarter of 2024 after a two-year slump. This represents the highest fourth quarter since 2021. However, six large transactions, including Openai, Xai and Databricks, accounted for 40% of that total, said Kyle Stanford, research director at Pitchbook.
“This is a very elite group company that orders VC investment,” he added.
Based on already closed transactions, those expected to do so in the coming weeks are set to see similar levels of investment in the first quarter of this year.
In the last two weeks alone, fintech firm Stripe and Ramp announced funding rounds at valuations of $91.5 billion and $13 billion respectively, while AI startups and Shield AI inclined transactions of $61.5 billion and $5.5 billion respectively.
VC is also working on a series of large investments. Openai, in consultation with SoftBank, will raise $40 billion at a $260 billion valuation, which is the largest funding round ever, surpassing its $10 billion investment in Databricks at the end of last year.
Founded by Palmer Luckey, Anduril is being debated to raise at least $2 billion at a valuation of more than $30 billion, more than double the valuation achieved last summer, according to two people with knowledge of the issue. Andrill declined to comment.
These more established companies are growing rapidly, with annual revenues of hundreds of millions or billions of dollars. According to Catalyst General Taneja, it makes them a relatively safe bet.
“It’s very vague about making money with AI, and a lot of capital will be concentrated in companies that are category leaders with customer bases and large markets,” he said.
But the excitement about AI has boosted young companies with no income and sometimes no products.
Launched last year by Openai co-founder and former chief scientist Ilya Sutskever, Safe Superintelligence raised $1 billion in 2024 at a $5 billion valuation, and is in talks to raise new capital at a $30 billion valuation, according to two people with direct knowledge of the transaction. No products have been announced yet. SSI declined to comment.
The massive funding rounds implemented show a major departure from traditional venture capitalism ruled by the “power law,” which targets the companies that arise and describes the best start-ups in the portfolio.
“We’ve always thought about it [a venture fund’s] Stanford of Pitchbook said the 50x return comes from seed investments that leave at IPOs.
In experiments that have been barely tested, the logic is now applied to companies that are bigger and more developed by the new kind of new kind that Stanford calls “pseudoVC.”
These include Josh Kushner’s thriving capital, general catalysts and Lightspeed venture partners. All of these have invested in multiple large rounds in recent weeks. All three companies are registered investment advisors, allowing them to invest in a wider asset class and hold the company after publication.
Additionally, each of the three groups has raised over $5 billion in funding, “we invest in startups at a $1 billion valuation, giving them enough size to hold them for 15 years until it’s worth $50 billion, and investing in multiple ways along the way,” Stanford said.
According to Sebastian Marabie, author of Electricity Actthe belief that even the most expensive startups can scale 10 times is what allows fund managers to hurry up with high enthusiasm for the name of the marquee and say, ‘I care about what I’m paying for.’ I’m a genius with this name. ”
The chances of established companies failing are slim, but Marabie warns, so its rating could also increase by 10 or 100 times. “Habits that worked very well in early stage investments need to be adapted when moving into a much larger round.”
The massive funding round of today’s discussion represents “a completely different style of venture from what I’ve ever experienced,” Stanford said.
According to Pitchbook, the VC peak in 2021 was characterized by a growing trend in round sizes and ratings. This year, total investments track levels for nearly 2021, but the market is increasingly biased.
“If you’re Openai or Anduril (a grown, named brand), you’re very well located. Money is for you. If you’re on the other side, like most companies, the money isn’t there,” Stanford said.
“It’s probably $800 billion [raised this quarter]but only one round of $4 billion of that. . . Even the outliers in 2021 were tiny in comparison. ”
Additional Reports by Christina Criddle of San Francisco
