According to PitchBook figures released on Wednesday, U.S. venture capital financing increased to $55.6 billion in the second quarter, the largest quarterly amount in the previous two years.

The most recent data indicates a 47% increase from the $37.8 billion that American entrepreneurs raised in the first quarter. This increase has been mostly attributed to major investments in artificial intelligence businesses, such as Elon Musk’s xAI, which raised $6 billion, and CoreWeave, which raised $1.1 billion.

The revival of venture capital (VC) financing has been driven by investors’ continuous optimism about developing and implementing AI technology, which has the potential to provide large profits.

U.S. venture capital financing has been progressively falling since hitting a record high of $97.5 billion in the fourth quarter of 2021. It recently fell to $35.4 billion in the second quarter of 2023 because to a slow exit market and high interest rates.

The negative trend in AI startups has been reversed by the current infusion of funding, leading more investors to focus on AI foundation model firms and code generation apps, which offer up new avenues for productivity solutions.

Small deals generated roughly $23.6 billion in exit value in the second quarter of this year, down from $37.8 billion in the first quarter, indicating that exits remain difficult despite the increase in deal activity, according to the statistics.

Even after several VC-backed businesses went public, such cloud data management company Rubrik (RBRK.N), opens new tab, the market for initial public offerings has failed to gather steam.

According to a statement from Pitchbook analyst Kyle Stanford, “big tech companies need to start listing publicly at a faster pace than we have seen through the first half of the year for VC returns to see an increase.”

Considering that just $37.4 billion in commitments have been raised during the first half of the year, emerging venture capital fund managers may already be feeling the weight of a lack of demonstrated returns. Big businesses were the main players in the fundraising game; Andreessen Horowitz alone closed fresh funds worth over $7 billion.

(Adapted from SCMP.com)

Categories: Economy & Finance, Strategy, Uncategorized