VC Fundraising Jumps As Investors Bet on ‘Transformative’ AI

Excitement for artificial intelligence (AI) has reportedly brought American startup investment to a three-year high.

But as the Financial Times (FT) reported Sunday, much of this funding from the venture capital (VC) space has been focused on a few very large private tech firms.

Upwards of $30 billion has been invested into tech startups already this quarter, the report said, citing data from PitchBook. Another $50 billion in fundraising is also in the works, with VCs hammering out deals for companies like OpenAI and Safe Superintelligence. The latter company — founded by OpenAI’s one-time chief scientists — is reportedly aiming to quadruple its valuation to $20 billion in a new funding round.

The rush to back AI companies has investors spending at their fastest pace since 2021, the FT report said, when $358 billion flowed into the tech space, leaving many companies with unrealistic valuations. However, VC groups think this situation will be different.

“AI is a transformative force that makes these companies better,” said Hemant Taneja, CEO of General Catalyst, one of the biggest VC firms in Silicon Valley.

“The way to think about it is ‘can these businesses reasonably grow 10x from where they are?’ The answer with all of these is yes, so they are reasonably priced,” he added.

Fundraising in the U.S. reached around $80 billion in the closing quarter of 2024, the report said, the best fourth quarter since 2021. However, 40% of that funding came from just six high-profile deals, said Kyle Stanford, director of research at PitchBook.

“It’s a very elite group of companies that are commanding the VC investment,” he added.

Meanwhile, the flurry of activity around AI companies has been bad news for FinTechs seeking new funding.

As covered here last week, new data from S&P Global Market Intelligence showed that the FinTech sector brought in $21.5 billion in venture investment last year, the lowest level of funding since 2016.

The report noted that a variety of factors led to this decline, including a drop in FinTech valuations and slowing growth rates, in terms of factors like headcount. This has caused many VC investors to shift their focus to companies in the generative AI field.

“With AI ‘revolutionizing’ multiple industries, venture capital is flowing where the next big breakthrough is expected,” John Clark, partner with FinTech-centric investment bank Royal Park Partners, said in the report.