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Venture capital investment has reached an inflection point, with funds flowing primarily into Artificial Intelligence startups at the expense of non-AI companies. According to a recent report from Silicon Valley Bank, Artificial Intelligence-focused funds commanded an unprecedented 40% of all US venture capital raised last year, a figure that has quadrupled since 2021. Nearly half—45%—of all investment into enterprise software in the US is now directed toward Artificial Intelligence ventures, jumping from just 9% in 2022.
This cash influx is most visible in the surge of high-value megadeals for companies like OpenAI and Anthropic, which collectively represent about half of all major funding rounds. Meanwhile, non-AI enterprise software startups have seen flat investment levels, with little to no growth. The report warns that this lopsided funding environment is creating a ´no man’s land´ for other startups, leaving many unable to secure adequate resources to weather a competitive and uncertain market. Many such companies risk becoming ´Zombiecorns´—startups with weak revenue and poor unit economics that are unlikely to see successful exits or further significant funding.
Broader market troubles compound the problem. Exit opportunities remain elusive due to the lingering effects of inflation and high interest rates that took hold in late 2021. Any optimism that shifting political winds, including the possible return of Donald Trump to the US presidency, might improve conditions has been undercut by recent tariff policies, which pushed several companies to delay planned IPOs. Only a few Artificial Intelligence firms, such as CoreWeave, have delivered strong public market results. Despite ongoing hype, most high-profile Artificial Intelligence startups remain years away from public offerings, and their enormous infrastructure costs mean that continued private investment is critical for their survival. With these companies too expensive for most acquirers and requiring ever-larger capital infusions, the current funding boom threatens to intensify the divide and leave entire swathes of the startup ecosystem on the outside looking in.
