AI Gets 31% of Venture Funds in Q2, Q3 2024: A Deep Dive into the VC Landscape

It was the spring of 2024 when I first noticed the shift. As someone who’s been knee-deep in venture capital and tech for over a decade, I’ve seen booms and busts. I’ve lived through the dot-com bubble, the rise of social media, the crypto craze, and now, the AI explosion. The latest buzz? AI is now responsible for 31% of all venture capital investments in the second and third quarters of 2024. But here’s the thing: it’s not just about the numbers. It’s about how the story behind these numbers is shaping the future of technology and investment.

‍

A Slow Market with AI as the Bright Spot

At the start of 2024, the venture capital market was sluggish. My inbox was quieter than usual. Fundraising rounds were sparse, and exits were nearly non-existent. According to Pitchbook, Q3 saw only $37.5 billion invested, which was down from Q2, but the real story wasn’t in the general decline. It was in the sector that was bucking the trend: artificial intelligence.

Every conversation I had with investors seemed to circle back to AI. From established giants like NVIDIA and Microsoft to VCs at Thrive Capital and SoftBank, AI wasn’t just a trend—it was the future. It was clear that while other sectors stalled, AI was where the action was.

But why? I remember a meeting in San Francisco with a partner at a top-tier venture firm. “Look,” she said, leaning across the table, “AI isn’t just the future; it’s the now. Every pitch we get is AI-based. Startups know that’s where the money is flowing.”

The Pitchbook data backed her up. AI accounted for 31% of all venture capital investments in the second and third quarters of 2024, far surpassing other sectors. And yet, the data didn’t even include some of the biggest deals of the year, such as OpenAI’s latest round.

AI’s Growing Appetite for Capital

In a way, the sheer scale of AI funding didn’t surprise me. I remember reading the Bain & Company report that projected the AI market—spanning hardware, software, and services—would hit $990 billion by 2027, growing by 40-50% annually. Let that sink in: nearly a trillion-dollar market in just three years.

The race to invest in AI is intense because the capital requirements are equally massive. These companies aren’t just building apps; they’re creating the infrastructure that will power entire industries. “We’ve never seen anything like this before,” said David Crawford, Bain’s global technology practice leader, during a talk in late Q3. He went on to describe how large hyperscalers like Amazon, Google, and Microsoft were driving enormous demand through the supply chain, which was creating shortages in everything from semiconductors to specialized AI hardware.

I saw this firsthand with one of my portfolio companies. They’re building AI solutions for healthcare, and every time we talk, it’s the same story: skyrocketing cloud costs, increasing demand for GPU compute, and relentless competition for talent. The money being poured into AI isn’t just speculative; it’s necessary for survival in an increasingly crowded market.

The Geography of AI Investment: Where Is It Happening?

In 2024, the venture capital landscape shifted geographically, too. While San Francisco remains the epicenter of AI innovation, other regions have lagged behind. The U.S. alone saw billions of dollars funneled into AI startups in Q3, but Asia was the outlier in terms of excitement.

I remember sitting in a meeting with a group of investors discussing why AI was seeing larger deal sizes and higher valuations in Asia than anywhere else. In fact, valuations in Asia were 40% higher than those in the U.S. for similar deals, according to Pitchbook data. One investor mentioned that while Silicon Valley was still the heart of AI innovation, the sheer scale and ambition of Asian startups were setting them apart. Companies there are not just competing; they’re leapfrogging ahead in areas like robotics, smart manufacturing, and AI-driven logistics.

One striking example was CoreWeave’s $6.6 billion round, which dwarfed nearly every other deal in 2024. But here’s the catch: not every AI company is going to secure a multi-billion-dollar round. For the vast majority of AI startups, funding rounds were much smaller, even if the excitement was palpable. It became clear that while AI is absorbing an increasing share of venture capital, it’s a tale of the haves and have-nots. Only a handful of companies are grabbing the lion’s share of capital, while many are struggling to stay afloat in the crowded field.

AI Startups Need More Than Just Money

The influx of capital into AI isn’t just about hype—it’s about necessity. During a conversation with an AI startup founder, she shared the stark reality: “Building AI models requires more than just a great idea. We’re dealing with infrastructure costs, talent wars, and insane competition for GPU resources. Without the capital, we’d be dead in the water.”

The truth is, AI startups aren’t like traditional software companies. They require massive amounts of compute power, often running on specialized hardware that isn’t cheap. Training models can take weeks or even months, with costs running into the millions. That’s why investors are willing to write such big checks.

But there’s another side to the story. As much as AI startups need capital, they also need patience. Unlike SaaS businesses, which can scale relatively quickly, AI companies often face longer timelines before they hit profitability. That’s why venture capitalists are in it for the long haul. They’re not just betting on AI today; they’re betting on its dominance five or ten years down the road.

The Exits Have Dried Up

One of the biggest challenges facing the venture market in 2024 is the lack of exits. “It’s the dam holding everything back,” a VC told me recently over coffee. And he’s right. We’ve seen IPOs trickle out in Q1 and Q2, but they’ve been few and far between. And the ones that did make it to the public markets haven’t performed well enough to sustain the broader venture market.

This lack of exits is creating a logjam. Venture firms that have invested billions over the past few years are finding it harder to recycle that capital back into new startups. As a result, there’s less money flowing into non-AI sectors. Investors are hoarding their dry powder for the AI companies that show the most promise, and for good reason—AI is one of the few sectors where the returns seem to justify the risk.

One of my colleagues pointed out that the massive sums raised by AI startups in 2024 aren’t just about ambition—they’re about necessity. If an AI startup wants to compete in this market, they need to scale fast. They need capital for infrastructure, talent, and research. And they need it now.

The Future of AI and Venture Capital

As we head into the final quarter of 2024, one thing is clear: AI is reshaping the venture capital landscape. While the overall market remains slow, AI continues to attract massive investment. The companies that secure funding are not only those with great ideas but also those with the infrastructure and scale to execute those ideas.

But it’s not just about securing capital—it’s about making the most of it. The companies that will succeed in the AI space are those that can not only raise funds but also deploy them effectively. They’re the ones who can navigate the complex supply chains, attract top talent, and build products that will shape the future of entire industries.

For those of us in the venture capital world, it’s an exciting time. The AI wave is only just beginning, and the next few years will determine who comes out on top. One thing is for sure: AI isn’t just another tech trend. It’s the new frontier, and it’s changing everything.

If you’re in the venture capital space and not already paying attention to AI, now’s the time to start. Because as 2024 has shown us, AI is where the future—and the money—is headed.

‍