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After two years of relatively quiet investment activity, it looks like VCs are starting to pour capital into startups at pandemic-era levels once again. But a closer look shows that they really aren’t.
In the fourth quarter of last year, investors poured $74.6 billion into US startups, a substantial increase from the average of $42 billion invested in each of the previous nine quarters, according to PitchBook data released on Tuesday.
While these levels of funding 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 disproportionately benefits a few companies. In fact, $32 billion, or 43.2% of Q4 investment activity, was invested precisely in a handful of colossal deals:
Databricks: In December, the data analytics company raised $10 billion at a $62 billion valuation.
OpenAI: The guaranteed ChatGPT creator $6.6 billion at a valuation of $157 billion in early October.
xAI: Elon Musk’s xAI developing a foundational model of generative AI called Grok, which has landed $6 billion from investors in December.
Waymo: Self-driving car developer operating robotaxi services in San Francisco, Los Angeles, and Phoenix secured a $5.6 billion Series C in November led by parent company Alphabet and joined by a who’s who of Silicon Valley venture firms.
anthropic: In November, the developer of generative AI models was resurrected $4 billion from Amazon.
Without these megadeals, Q4 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.
Whether 2025 will see a continuation of the high levels of venture capital investment observed in Q4 of last year remains to be seen. However, the bulk of venture capital funding will likely continue to flow to a small cohort of the most promising AI companies.
