The AI investment boom coincides with a lingering overhang of investments from the zero interest rate policy era, leaving $2.5 trillion trapped in private unicorns. The industry is yet to see significant exit events or IPOs that could return capital to investors. Despite these uncertainties, investors continue to pour funds into AI startups, with 2025 potentially being a pivotal year for VC investment in AI. The focus remains on identifying startups that are truly innovative and capable of disrupting existing industries.
Key takeaways:
- AI startups accounted for 22% of first-time VC financing in 2024, with $7 billion raised by AI and ML startups according to PitchBook data.
- Crunchbase reported that AI-related startups raised $19 billion in Q3 2024, making up 28% of all venture dollars for that quarter, excluding a $6.6 billion round by OpenAI.
- There is concern that some startups may be using AI as a buzzword to attract funding, leading to potential bubbles in certain sub-verticals.
- Investors are focusing on AI applications in pharmaceuticals, fintech, healthcare, and vertical software as key areas for transformative impact in 2025.