AI's $100 billion impact: 2024’s venture capital surge and the road ahead for startups

Today on Equity, Julie Bort sits down with Crunchbase News’ Senior Data Editor, Gené Teare, to dive deeper into the year’s slight growth in investment, which reached $314 billion, up from $304 billion in 2023. The pair explores how AI became a dominant force in the landscape. As Teare puts it, “Tech rides on bubbles. What bubbles tell you is that if everyone's putting dollars into a certain sector, it means there are very big outcomes coming.” Listen to the full episode to hear more about: The surge of AI investment and what it signals for the future The challenges startups face in raising capital, particularly in Series A Regional concentration of venture funding, especially in the U. S. What’s next for the IPO market as we look toward 2025 Equity is TechCrunch’s flagship podcast, produced by Theresa Loconsolo, and posts every Wednesday and Friday. Subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. You also can follow Equity on X and Threads, at @EquityPod. For the full episode transcript, for those who prefer reading over listening, check out our full archive of episodes here. Credits: Equity is produced by Theresa Loconsolo with editing by Kell. We’d also like to thank TechCrunch’s audience development team. Thank you so much for listening, and we'll talk to you next time. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Ha?

  This episode of Equity is brought to you by Schneider Electric. Schneider Electric, your energy technology partner.

• 0:17Rebecca Bellan?

  Hello and welcome back to Equity, TechCrunch's flagship podcast about the business of startups. I'm Rebecca Bollan and this is the episode where we bring on industry experts to help us home in on a trend in the tech world and dive deep. It's no secret that 2024 was a breakout year for AI. But to dive deeper into the numbers, I'm handing the reins over to TechCrunch editor over on the Venture Desk, Julie Bort. Julie caught up with Crunchbase's new Senior Data Editor, Janai Tiir, to take a look at global venture funding in 2024, who came out on top, and what we expect to see in 2025. Let's take a listen.

• 0:52Rebecca Bellan?

  Janai, welcome back to Equity. Today, we're going to talk about the state of the venture capital universe. You just finished extensive research on what happened in 2024, and you have some ideas of maybe what this indicates for 2025, or at least the early part of 2025. Let's dive in with like, what was the most surprising thing that your research showed up? What did you expect to see, but then the data said something else?

• 1:20Speaker 02

  Yeah, well, it's always interesting. I spend a lot of time with the Crunchbase dataset analyzing and looking at the venture ecosystem. And the leading report that comes out looks at venture globally, and then we look at each region. And I think what was interesting, to sort of frame the discussion, is venture, I would say, was slightly stronger in 2024 than in 2023. So we're close to two and a half years into the downturn. We're two full years, because 2022, even though the market corrected at the end of 21, the beginning half of 2022 was still pretty strong from a venture perspective. So we're really two full years into the downturn. And what I saw in 2024 is that the market picked up a little bit. So globally, it was 314 billion in 2024.

• 2:05Speaker 02

  That was a little bit up from just north of 300, it was around 304 billion in 2024. Twenty three and you might say that's a very small pickup. But when you look at the US market specifically, that was up around twenty percent.

• 2:17Speaker 03

  Oh, that's a lot.

• 2:18Speaker 02

  Yeah, so the US market, which is the leading market for venture, was up. And then when you look at the more active investors, the multi-stage investors, when you look at the more active early-stage investors, my experience of watching that is as a class, they've invested a little bit more in twenty twenty four. They were up in twenty twenty four compared to twenty twenty three. So I think the mood around venture, and we certainly saw that in Q four where all numbers were up, it was a bit of a boost in Q four for the venture ecosystem, which tipped it over ahead for this year. Is that there's a different mood in venture in twenty twenty four compared to twenty twenty three.

• 2:57Speaker 03

  All right, so dive in a little bit more about that twenty percent. So where did most of that giant growth come from? If I had to guess, I'm a guessing kind of a person, I would say enormous rounds in AI models. But is that true or were there other areas that picked up in a way to contribute to that big leap?

• 3:18Speaker 02

  Yeah, so I think the most surprising thing, and in a way not surprising, but it's always interesting to look at the numbers, is the largest sector for dollars was AI. So out of that sort of three hundred billion, over a hundred billion went into the AI sector. And that is unprecedented. When I look back over our data set and look at leading markets in earlier years, certainly healthcare and financial services in twenty twenty one with the two leading markets. The proportion of dollars that went into those very, very big sectors was just north of twenty percent. It was the twenty one, twenty two, twenty three. So for a third of all funding to go into a single sector tells you that something very, very different is happening around AI.

• 3:58Speaker 02

  And I think the surprising thing for me is that it was up year over year. So last year, around fifty five billion went into the AI sector. Obviously, the GPT moment happened at the end of twenty twenty two. So in twenty twenty three, we saw a lot of dollars go towards this AI sector, but that grew in twenty twenty four quite substantially, up eighty percent. And if you look at all the other sectors, they're all kind of flat or in line or a little bit below. We see nothing like this. Every other sector didn't grow in twenty twenty four like the AI sector grew.

• 4:30Speaker 03

  Well, we're going to get back to that comment about mood. Do you want to know more about that? But before we get off what's happening with AI, it didn't surprise anyone that AI took so many dollars and that is unprecedented. But are you seeing signs that AI is already reaching sort of bubble status? I'm thinking of the giant story that happened this year with Inflection. It had all these signs that it was going to be another big model player, another big AI player. Of course, this was the company that then kind of got AccuHired away by Microsoft. And I thought that might have been an indicator that there was exuberance, maybe unnecessary exuberance going on. So I don't know. Are there any other signals in the data that we're reaching bubble status?

• 5:13Speaker 03

  Or does it seem like, you know, the funding is justified?

• 5:17Speaker 02

  Yeah. Well, you know, what's interesting is if you look at the ratcheting up of AI dollars this year and the fact that, you know, it's up 80% year over year and a third of funding went into AI. You see very, very competitive deals. You see companies coming out the gate raising a billion dollars in their very first round, almost before they've launched a product. And there was a discussion, I don't know if you think back in Q2 when I was doing that report, there was this discussion that too much money is going into the AI sector and we might not see the kinds of returns that we need in the sector. And so too much money is going in. Then obviously Q4 happened and a lot more went into AI. The way I look at this is in a way tech thrives on bubbles. That what bubbles tell you is that if everyone's putting dollars in a certain sector

• 5:59Speaker 02

  and going towards a certain sector, that means there are very big outcomes coming out, will come out of the sector. When I talked to VCs as part of my AI series, they said 80% of their deal flow is sort of AI focused. So you've got founders, you've got investors, you've got big tech all focused on AI. And I think what that means is big outcomes are coming. And so in a sense, these bubbles make sense. And when I look at this, I think a lot about the risk and how much risk is going in. And if you look at the venture ecosystem in 2021, it doubled. It was over 700 billion. We're far below, we're about 45% in 2024 of that total, north of 300 billion. So the amount of capital that's being risked is Is not what it was in twenty twenty one.

• 6:42Speaker 02

  And also, the risk is being taken on by not only the venture ecosystem, but private equity is investing in these very large deals. So they're also taking on part of that risk. And then we've also seen these big corporates like Microsoft and Amazon coming to invest in these big foundation model companies. Yes, there's risk. I think there is a bit of a bubble. I think we're very early on. This is just, we're two years in. So I think there's a lot more to come. I expect AI to continue growing in twenty twenty five. There is a bit of a bubble, but the risk does not seem outsized compared to the opportunity.

• 7:13Speaker 03

  So almost no bubble, like we'll have to see, like it might really be money well spent. Also, there's AI washing, there's something about how we're classifying every company that's using AI as an AI company. Can you talk a little bit about that part of it? Obviously, AI infrastructure and AI models, definitely in AI. But there's a whole lot of stuff that's now really companies that are using AI and calling them AI might be a bit of a stretch. So what what are you seeing in terms of money going into companies? That is basically AI washing companies.

• 7:50Speaker 02

  Yeah, so I think it is true that all companies, you know, if investors are investing in AI and founders, everyone's going to be telling their story with an AI angle. And that's true for incumbent companies who are raising. So some of the larger tech companies that are still private, as well as the newer tech companies. I think what was interesting in this hundred billion dollar number and how we try to associate companies as being in this AI sector. As we look at these foundation model companies, as you said, they're clearly AI. We look at all the infrastructure companies, the data centers who are AI oriented, as well as all the data layers, so sort of managing the data for AI. We also include those companies. And then we look at companies which are the applied AI companies. So the companies who are bringing AI into their products.

• 8:35Speaker 02

  And we only try to tag companies where AI is central to their story. But if you look at all the industries that are affected, which raise big dollars for us, autonomous driving, big in AI, healthcare, big in AI, robotics, big in AI, professional services, so all these services. Services which are going to help you with coding or marketing or sales or customer support, which have AI at the center, those are very important. And then we've also seen cybersecurity, AI is becoming more critical to that sector as well as military like and rural industries. So I think AI is sort of weaving through all of this. I'm sure there are companies in our debt in that third of funding who are sort of these AI wrappers, but it's becoming critical to so many sectors and many of the newer companies are coming out, AI is central to their story.

• 9:25Anthony Ha?

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• 10:03Speaker 03

  All right. So you mentioned mood. Tell me a little bit more about the mood going into 2025 when it comes to all things venture capital.

• 10:11Speaker 02

  Well, certainly, I think, you know, when talking to investors this year, what I've heard is it's almost like venture had played itself out a little bit. So much money went into 2021. There was very little liquidity on the IPO front after 2021, both and also on the M and A front. And I think this year, people were expecting M and A to pick up. It picked up a little bit year over year, but not as much as needed. So I think we're still in this downturn because there hasn't been liquidity. But AI has been this new wave, which is going to completely change software. But this change is going to happen not over two years or five years. It's more a 10 year kind of cycle. And so I think what investors are excited about is the fact that they're beginning to look at that and invest somewhat

• 10:56Speaker 02

  being concentrated about their dollars. When I talked to people in 2021, They invested in everything. Everything was up into the ride. If you invested, you knew a company would go on to raise pretty quickly. And so I think they were a little bit loose in twenty twenty one. That climate is very, very different where investors are investing. They're focusing their dollars. It's concentrated. They believe in those companies. But there is an expectation that, as I say, this is going to change so many industries. So there's excitement around that. And we saw more of that in twenty twenty four than in twenty twenty three. And I think also we're three years past the downturn. There's also an expectation that possibly this year, the IPO markets could pick up somewhat with Klarna confidentially filing. I think there's a sense that some of those bigger brands might choose to go out in twenty twenty five and twenty twenty six.

• 11:41Speaker 02

  And so I think there's also a shift because we're far enough away from twenty twenty one. And there's more of a focus on growth in the tech market. So there's a little bit more anticipation that things could improve in twenty twenty five. And I think we saw that.

• 11:55Speaker 03

  So to press you a bit, the mood, if I'm summarizing this correctly, went from sort of the doldrums, you know, hangover. We talked about the twenty twenty one hangover in twenty twenty two and three to excitement. People are excited and optimistic again. It hasn't been so far away that we've switched all the way back into full on greed, where they're where they're not being as cautious as they need to be. But it sounds like people are excited again, right? About investing?

• 12:22Speaker 02

  Yes, I think so. But I also think what I hear from people is that venture, it's a tough ecosystem. It is hard to get returns. It is hard to invest at a company at the earliest stages and have that company, you know, bet on a winner and have that company go all the way through. And so I think tech is a much more, there's exuberance and excitement about the upside of companies that you believe in. But there's also this reality and this awareness that this is hard. Not everything goes up into the ride. And twenty twenty one looked very different where literally everything, I look at our data, M and A was up. IPOs were up, number of unicorns were up, everything was just getting valued up and everything was just raising. And I think the climate in twenty twenty three and into twenty twenty four is this is not an easy business.

• 13:06Speaker 02

  It is not easy to get returns. It takes ten years for a company to. Grow, there's a lot that happens for companies within that ten year cycle. And so I think venture is back to its roots of we're going to be more cautious. We're going to make big bets on things that we believe in and we realize this is going to take time. So I think that environment has sort of come back to venture and you're seeing that I think it's going to take longer to raise funds. I think a lot of funds won't be able to raise in twenty twenty five that have raised in previous years. And I think venture is going to go back to investing over a longer span, not investing a fund in a year to a year and a half, but more to two to three years to de-risk that, to invest across multiple phases, not just in sort of one moment in tech.

• 13:47Speaker 03

  So it sounds like there's still some cleaning up to do, even going into twenty twenty five. And that brings me to like, what sectors aren't showing signs of a rebound?

• 13:55Speaker 02

  Yeah, you know, the strongest sector has been healthcare and biotech and AI in twenty twenty three. And then AI kind of jumped ahead in twenty twenty four. So those were the two sectors that were sort of competing in twenty twenty three. The sectors that we've seen come down have been, you know, from the market peak is financial services. These are some of the biggest sectors. Financial services is still strong and still a big sector, but it's down quite significantly from the market peak. Commerce and shopping is also down and blockchain and crypto. So I think those are the three when I look out over the span have come down the most.

• 14:28Speaker 03

  And it feels like at least two out of those three, we don't know what's going to happen in twenty twenty five, right? Because now there's sort of a resurgence crypto with the new administration coming in. Maybe it's going to see its shine come back possibly. There was a lot of stuff that caused it to crash the way it did, but also fintech. Fintech had a real unraveling moment over twenty twenty four with the collapses, Synapse and all that kind of stuff. And yet there are some very strong fintech companies waiting in the wings to IPO. You mentioned Klarna, for instance, and yeah, we'll see.

• 15:01Speaker 02

  Yeah.

• 15:01Speaker 03

  Those are the ones that I'm most doubtful about. Do you have more confidence in either one actually doing all right next year?

• 15:08Speaker 02

  I mean, I think financial services is more of a real sector and there's a lot of high growth companies in that sector. There's a lot of companies on our unicorn board that are in financial services that are still private. So I think financial services, you know, it's still a big sector, even though it's down, it's still one of the leading sectors. That sector is probably going to have a moment in twenty twenty five with the IPO markets. Blockchain and crypto, yes, I think we will see some comeback, but I think the use cases are more specific. So it'll be interesting to see what happens there.

• 15:37Speaker 03

  All right. So if you're wrapping all this up, like if you're sitting there, you're kind of looking at what happened at the past, but you have so much data, you've done this for so long, that I do want you to put on your little future looking hat. And, you know, what advice can you give to founders specifically who may have struggled to raise in 2024, right? Or certainly didn't raise at the kinds of valuations they dreamed of, right? So what are you, what are you seeing for them in 2025? Should they make sure that all of their slides say AI? Or what are you thinking for those folks?

• 16:14Speaker 02

  Yeah. Yes, AI. If you're AI focused and you're a leader who comes out of one of these foundation model companies, you're going to get funded. So we're seeing that happen very quickly. I think it remains an incredibly tough funding environment. And when I'm out there speaking to founders and investors, it's a tough environment to sell into. It's tough to get those revenue dollars. So I think it remains an incredibly tough environment for startups. And, you know, one of the things which we've been tracking in our data set is just the recent spate since 2020 of seed funded companies. And a lot of those companies are staying in the seed pool a lot longer, are not sort of moving beyond seed to that kind of pivotal series A round. And so I think this just

• 16:58Speaker 02

  remains an incredibly tough environment for seed stage companies. And there are, you know, seed has been relatively more robust through the downturn. It didn't come down as much as some of the other sectors, but I'm not seeing a lot of those companies move along. And so it's going to be interesting to see what happens to seed. And part of that is they're just raising larger seed rounds. So maybe they're holding off on that series A because seed has kind of become more elastic as a series. But I think it remains a very tough funding environment. Everyone says certain companies will get funded, certain companies will be more competitive, and will find it easier to raise those larger dollars and build some kind of a moat. But I think it is still an incredibly tough market for founders.

• 17:40Speaker 03

  Raising a Series A, it sounds like.

• 17:42Speaker 02

  Especially Series A.

• 17:43Speaker 03

  Yeah, really have some great financials, you know, to get your. And are there geographies that you're seeing any surprises with? Obviously, we know Silicon Valley startups located there seem to be still really doing quite well. But beyond being located in the San Francisco Bay Area, are there other geographies that you've seen surprises in with this data?

• 18:05Speaker 02

  Yeah, so as I said, the US market has grown the most. And I should tell you a little bit more just about the US and that sort of AI proportion, because the US is really leading in the sector and it's very dramatic. When you look at the dollars specifically for the Bay Area and the US. But what we've seen outside of the US market is Europe. I've just written up the European report. That was pretty much flat year over year. So not a lot of pickup in the European market that we've seen. I think Latin America grew a little bit, but it's a much smaller base. And then Asia came down quite dramatically. So really, I think a lot of the energy in the venture markets in 2024 was towards the US. And when I look at the proportion of dollars that US companies raised,

• 18:47Speaker 02

  it went up almost 10% from around 48 or 49, which is usual for the US market. In recent years, all the way to 57% of venture funding went into the US. And the proportion of AI in the US was 44%, so much bigger globally. And then the proportion of AI in the Bay Area was 60% of dollar volume. Deal counts were around 42%. So not the majority of deals, but when you look at the dollars going into the Bay Area, 69% of dollars in the Bay Area were AI focused. And the Bay Area accounted for 61% of the whole AI funding market, 62 billion out of that 100 billion. So I think the biggest story in 2024 was the kind of lead that the US market has taken,

• 19:30Speaker 02

  specifically around AI, and that that is very concentrated within the Bay Area itself. Again, not surprising, but it's good to put some kind of dollars around what that looks like.

• 19:40Speaker 03

  Does that concern you at all, though? Are some of these other regions being left behind of the biggest thing that has been happening in the tech industry, AI, by having startups that are struggling to raise, by not having as many foundational companies? Is that concerning at all to you?

• 19:59Speaker 02

  Well, I think there's a big AI sector emerging in China. There are a few foundation model companies coming out of that market. We have Mistral in Europe. So certainly, these markets are behind. I think there was a company in Canada as well. I think it was here. I'm gonna not say that correctly. So, yes, the Bay Area is the epicenter, and I think in some ways that is concerning for other markets, that they will need to do some catch-up. But they can also benefit from these models and take advantage of these models for European startups. There's very, very strong ties between the US market and Europe. There's very, very strong ties between the US market and Canada. And so I think for many of those companies, they can take advantage of these developments and possibly build, you know, companies that can take those and sort of jump ahead as

• 20:44Speaker 02

  well. So I think there's lots of opportunities. It'll be interesting to see in the next year if some of these smaller model companies that are emerging get some of those bigger dollars across the globe.

• 20:53Speaker 03

  Yeah, we're really gonna have to see. We'll see if this can even be more widely distributed. So, besides AI, which I know is all-consuming right now, I am sort of curious about other types of companies that have really landed like mega-deals. I've seen a lot in AI, and then it seems like biotech has really picked up. But are you seeing anywhere else where the mega-deals are coming through?

• 21:19Speaker 02

  I think the largest sectors outside of AI that we've seen is some in cybersecurity. Obviously, AI is weaving through that as well, and some in the energy space. There've been pretty big rounds in energy, which we don't see as specifically AI-centered. So I'd say, yes, there are large companies. AI is not the center that are raising, but certainly AI is being woven in.

• 21:40Speaker 03

  Finally, what is it as you look at 2025? Where do you think this is all moving? So we've talked about how it's going to be more difficult for CVCs to raise. It's going to be more difficult for Series A founders to raise. We saw the lack of IPOs in 2024, making these later-stage deals enormous with a lot of tender offers. I'm wondering if 2025 is sort of the year we get back to things being normal, where we're seeing IPOs and exits, and then we're seeing investments come in, and we're seeing a bigger distribution of money going to a wider variety of really good ideas

• 22:21Speaker 03

  in a lot of areas, prop tech, for instance, with interest rates possibly coming down even more. So I'm just wondering, as you look ahead to 2025, like, what are you expecting to happen?

• 22:33Speaker 02

  Yeah, we're, as I say, we're two years into this AI wave, and that will continue. I think what the market is looking for in 2025 is really the IPO market's beginning to open up. If that doesn't happen, we will see venture be a little bit more subdued. Despite the exuberance around AI, I think we're going to see cutbacks in terms of money going into funds, and that will affect the venture ecosystem. So I think really what everyone's looking for, and not massively out the gates, it doesn't need to be that in 2025, but some key companies who've stayed private for a very long time beginning to test and go out. And if those companies do well, that will create more interest in other companies doing so.

• 23:15Speaker 02

  And I think ServiceTitan at the end of 2024 was a good indicator. That went out with a bump. It wasn't AI-focused, it wasn't a Bay Area company. It's software for the trades, to schedule, you know, trade folks. And so I think the fact that that IPO did very well was something that people have taken as a good indicator for 2025.

• 23:35Speaker 03

  It's a good sign.

• 23:36Speaker 02

  Yeah.

• 23:36Speaker 03

  There's an awful lot of startup employees that would like to see some IPO action happening. All right, well, we're just about out of time, but where can our listeners connect with you online?

• 23:47Speaker 02

  Yeah, so you can find me on X at Janet Tiere, it looks like the man's name, Gene, G E N E T E A R E. And also I'm on Crunchbase News, all this reporting is coming out. You know, I speak a lot to people and I just think to look at the numbers helps frame the whole discussion and give you a sense of where we are.

• 24:04Speaker 03

  Well, thank you again so much for joining us on the show.

• 24:07Speaker 02

  It was wonderful to be here and whenever I'm on, I hear from people that they said they heard the show, so.

• 24:12Speaker 03

  Oh, we love to hear it.

• 24:14Speaker 02

  Congrats.

• 24:14Speaker 03

  Thanks so much again for joining, Janet. Equity will be back on Friday and until then, listeners can keep up with the show at Equity Pod and on X and Threads. Bye.

• 24:28Rebecca Bellan?

  Equity is produced by Teresa Locum-Solo with editing by Kel. We'd also like to thank TechCrunch's audience development team. Thank you so much for listening and we'll talk to you next time.