After two years of relatively modest investment activity, it appears that VCs are starting to pour capital into startups again at pandemic-era levels. But a closer look shows that they actually aren’t.
In the fourth quarter of last year, investors funneled $74.6 billion into U.S. startups, a substantial increase from the average of $42 billion invested in each of the previous nine quarters, according to PitchBook data released Tuesday.
While these funding levels were previously only seen during the peak of the ZIRP era (late 2020 to 2021), the reality is that this recent increase in venture capital funding is disproportionately benefiting only a select few companies. In fact, $32 billion, or 43.2% of fourth-quarter investment activity, was invested in just a handful of colossal deals:
Databricks: In December, the data analytics company raised $10 billion at a $62 billion valuation.
OpenAI: The maker of ChatGPT secured $6.6 billion at a $157 billion valuation in early October.
xAI: Elon Musk’s xAI which is developing a foundational generative AI model called Grok, which raised $6 billion from investors in December.
Waymo: The self-driving car developer that operates robotaxi services in San Francisco, Los Angeles and Phoenix secured a $5.6 billion Series C deal in November, led by parent company Alphabet and backed by a who’s who of Silicon Valley venture capital firm.
Anthropic: In November, the generative AI model developer raised $4 billion from Amazon.
Without these mega-deals, fourth-quarter investment activity would have mirrored the prior two-year average of $42 billion. This heavy concentration of venture capital investment highlights the growing gap between a few well-funded companies and the broader startup ecosystem.
It remains to be seen whether 2025 will see a continuation of the high levels of venture capital investment seen in the fourth quarter of last year. However, the majority of venture capital funding will likely continue to flow to a small group of the most promising AI companies.
