After two years of relatively subdued investment activity, venture capital firms appear to be starting to pump capital into startups at pandemic-era levels again. But a closer look shows that they really are not.
In the fourth quarter of last year, investors transferred $74.6 billion into U.S. startups, a significant increase from the average $42 billion invested in each of the previous nine quarters, according to Beachbook data Released on Tuesday.
While these funding levels were previously only seen during the peak of the ZIRP era (the end of 2020 through 2021), the reality is that this recent increase in venture capital funding disproportionately benefits a select few companies. In fact, $32 billion, or 43.2% of investment activity in the fourth quarter, was invested in a few mega deals:
Data templates: In December, the data analytics company raised $10 billion at a valuation of $62 billion.
Open AI: The maker of ChatGPT had a $6.6 billion valuation at a $157 billion valuation in early October.
xAI: Elon Musk’s xAI is developing a foundational AI model called Grok, which secured $6 billion from investors in December.
Waymo: The self-driving car developer that operates robo-taxi 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 group of Silicon Valley investment firms.
Anthropic: In November, the generative AI model developer raised $4 billion from Amazon.
Without these mega deals, investment activity in the fourth quarter would have mirrored the previous two years’ average of $42 billion. This stark concentration of venture capital investments highlights the widening 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 observed in the fourth quarter of last year. However, most venture capital funding will likely continue to flow toward a small group of promising AI companies.