- The US venture capital funding surged to $55.6 billion in Q2, driven by significant investments in AI companies, reversing a previous decline.
- The resurgence in venture capital funding highlights the immense potential of AI technology, despite ongoing challenges in the exit market and sluggish IPO performance.
OUR TAKE
The fever for AI technology brings the reemerged VC funding. AI, however, is not just the next big thing; rather, it is a black hole for capital. Whether the sector will last long, and if the outsized funding required by AI businesses can achieve the desired result, are questions that investors need to consider seriously.
–Ashley Wang, BTW reporter
What happened
The US reached the highest level of its venture capital (VC) funding at $55.6 billion in the second quarter, breaking a two-year record, according to PitchBook Data published on Wednesday. This marks a 47% increase from the $37.8 billion raised in the first quarter. The surge is motivated by investments in AI companies, with Elson Musk’s xAI raising $6 billion and CoreWave $1.1 billion.
In Q4 of 2021, the US hit a record high of $97.5 billion, after which the funding underwent a steady decline. It was not until the influx of capital into AI technology that the trend reversed. Contrary to the increasing deals, the exit market presents a sluggish decline, with small deals generating $23.6 billion in exit value, down from $37.8 billion in Q1.
Also read: OpenAI’s $100 billion target: Realistic valuation or VC madness?
Also read: The AI revolution: transforming data into insights
Why it’s important
AI technology seems at the centre of a whirlwind. The resurgence in VC funding is primarily driven by investors’ booming interest in building and adopting AI technology. Casber Wang, partner at Sapphire Ventures, noted that the AI business demands significant funding due to its capital intensity and emerging use cases. The reversion of a downward trend in VC funding, encouraged by AI technology, highlights the industry’s potential for substantial revenue generation.
Yet, the challenging exit marker and the sluggish IPO performance indicate ongoing difficulties. This leads to excessive pressure on emerging VC fund managers due to a lack of proven returns. The M&A market is expected to grow for AI startups seeking emerging leaders.
