By George Hammond, Financial Times; Compilation: Whitewater, Golden Finance
U.S. startups have raised more capital than at any time since 2021 due to investor optimism about AI, but the venture capital market has shifted significantly toward funding a handful of large private tech companies. **
According to PitchBook, more than $30 billion has been invested in emerging groups during the quarter. **An additional $50 billion in funding is in the pipeline as venture capitalists work on a series of major deals involving OpenAI, Safe Superintelligence, and defense tech startup Anduril.
The frenzy for AI has prompted investors to invest at the fastest pace since the market peak in 2021, during which $358 billion poured into tech groups, saddling many companies with unrealistic valuations.
But venture capital groups believe that this investment cycle will be different. “AI is a transformative force that can make these companies better,” said Hemant Taneja, CEO of General Catalyst, one of Silicon Valley’s largest venture capital firms.
“The way to think about this is, ‘Can these businesses reasonably grow 10 times from where they are now?’” **'The answer to all of them is yes, so their prices are reasonable," he added.
After a two-year downturn, U.S. funding jumped to about $80 billion in the last quarter of 2024, according to PitchBook. It was the best Q4 since 2021. But Kyle Stanford, head of research at PitchBook, said just six large deals (involving OpenAI, xAI, Databricks, etc.) accounted for 40% of the total.
“It’s a very elite group of companies that dominate venture capital,” he added.
Based on the deals that have been completed and those that are expected to close in the coming weeks, the first quarter of this year will have similar levels of investment – which would make it the best first quarter to raise since 2022.
! AsNkZ7ix702bRudzgpj71y2nJLpk2UcWE6EQXTCl.jpeg
In the past two weeks alone, fintech companies Stripe and Ramp have announced funding rounds valued at $91.5 billion and $13 billion, respectively, and AI startups Anthropic and Shield AI have signed deals of $61.5 billion and $5.3 billion, respectively.
Venture capital firms are also making a series of large-scale investments. OpenAI is in talks with SoftBank to raise $40 billion at a $260 billion valuation, which would be the largest funding round ever, surpassing the $10 billion investment in Databricks late last year.
Anduril, founded by Palmer Luckey (Palmer Luckey), is in talks to raise at least $2 billion at a valuation of more than $30 billion, more than double its valuation in a funding round last summer, according to two people familiar with the matter.
These more established companies have annual revenues of hundreds of millions or billions of dollars and are growing rapidly. General Catalyst’s Taneja, who has invested in Anduril, Anthropic, Ramp and Stripe, says this makes them relatively safe options.
“The path to making money in AI is very vague, and a lot of capital ends up being focused on industry leaders who have a customer base and a large market,” he said.
But the enthusiasm for AI is also driving the growth of young companies that don’t have revenue or even products.
Safe Superintelligence, founded last year by OpenAI co-founder and former chief scientist Ilya Sutskever, raised $1 billion in 2024 at a $5 billion valuation and is currently in talks to raise new capital at a valuation of $30 billion or more, according to two people with direct knowledge of the deal.
**The massive funding round underway marks a significant departure from traditional venture capitalism, which targets emerging companies and is governed by the “power law,” whereby the best startups in the portfolio will make up for the losses of the remaining companies that fail. **
“We’ve always thought that a 50x return [for venture funds] would come from the seed investments they exited at the time of the IPO,” PitchBook’s Stanford said.
In an untested experiment, this logic is now being applied to orders of magnitude larger, more established companies that Stanford calls “pseudo-venture capital firms.”
These include Josh Kushner’s Thrive Capital, General Catalyst, and Lightspeed Venture Partners, all of which have invested in several big funding rounds in recent weeks. All three companies are registered investment advisers, which allows them to invest in a wider range of asset classes and hold the companies once they go public.
The three companies also raised more than $5 billion each, giving them “enough scale to invest in startups valued at $1 billion and hold them for 15 years until they reach a value of $50 billion, investing in multiple ways along the way,” Stanford said.
Sebastian Malabi, author of The Law of Power, believes that even the most expensive startups can scale up to 10 times, a belief that “has fund managers flocking to big-name companies with enthusiasm and saying, ‘Who cares how much I pay?’” I’m a genius to get into this industry. ’”
Malabi warned that while it is less likely that an established company will fail, it is also less likely that its valuation will increase tenfold or hundredfold. “Habits that worked well in early-stage investments need to be adjusted when moving into larger funding rounds.”
The big funding round discussed today represents “a completely different style of venture capital than I’ve experienced,” Stanford said.
The peak of venture capital in 2021 was characterized by rising funding sizes and valuations: according to PitchBook, there were about 854 deals of $100 million or more that year. This year, total investment is close to 2021 levels, but the market is becoming increasingly unbalanced.
“If you’re OpenAI or Anduril (a well-known brand with high growth), then you’re in a very advantageous position. The money is all around you… If you’re on the other side, like most companies, the money isn’t there,” Stanford said.
"Maybe it will end up being $80 billion [raised in the quarter], but $40 billion of that is just one round… Even the outliers for 2021 are insignificant compared to this. ”
