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AI deals lift US venture-capital funding to highest level in two years

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5 months ago

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AI deals lift US venture-capital funding to highest level in two years

The latest figure shows a 47 per cent jump from the US$37.8 billion that US start-ups raised in the first quarter, largely driven by significant investments in AI companies, including US$6 billion raised by Elon Musk’s xAI and US$1.1 billion raised by CoreWeave.

Investors’ ongoing excitement around building and adopting AI technology, which could potentially bring significant returns, has fuelled the recovery of VC funding.

After reaching a record high US$97.5 billion in the fourth quarter of 2021, US VC funding had been steadily declining. It hit a recent low of US$35.4 billion in the second quarter of 2023, amid a high interest rate environment and a sluggish exit market.

Elon Musk’s artificial intelligence start-up xAI raised US$6 billion in a series B funding round in May to accelerate its challenge to his former allies at ChatGPT creator OpenAI. Photo: Shutterstock

The recent influx of capital into AI start-ups has reversed the downward trend, prompting more investors to double down on companies involved in AI foundation models, as well as applications from code generation to productivity tools.

Despite the increase in deal activity, exits remain challenging, the data shows, as small deals generated about US$23.6 billion in exit value in the second quarter this year, down from US$37.8 billion in the first quarter.

The initial public offering market has struggled to gain momentum, even after some VC-backed companies such as cloud data management company Rubrik, went public.

“For VC returns to see an increase, large tech companies must begin to list publicly at a higher pace than we have seen through the first half of the year,” PitchBook analyst Kyle Stanford said in a statement.

Emerging VC fund managers may have already felt the pressure of a lack of proven returns, with only US$37.4 billion in commitments raised through the first half of the year. Large firms dominated the fundraising, with Andreessen Horowitz alone closing new funds with more than US$7 billion.
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