AI startups are feeding into the enterprise industry and the returns are good so far

Well, the data is out. Amnesty International Startups counted That’s 41% of the $128 billion in venture dollars raised by companies in Carta last year — a record annual share. However, we knew that to some extent. Last year, investors were voracious in allocating capital to AI startups, to the point where 10% of startups accounted for half of the funding.

These startups include Anthropic, OpenAI, and xAI, which raised billions of dollars last year at sky-high valuations. In fact, they are still rising at an even more astonishing speed. In January, xAI raised a $20 billion Series E round. In February, OpenAI secured a $110 billion round, one of the largest private rounds ever raised, bringing the company closer than ever to a $1 trillion valuation.

In terms of size, between OpenAI and xAI was Anthropic, which raised a $30 billion Series G last month at a $380 billion valuation. OpenAI and Anthropic take a chunk of the $189 billion in global venture capital recently raised month, Along with xAI, it sparked IPOs later this year that left investors fuming.

The state of the venture market is now K-shaped – or bifurcated – where capital remains concentrated in a select few companies that then support a handful of companies, while everyone else is there, well, sort of.

“While it has become a little more difficult to raise funding rounds, the capital per round has increased,” Peter Walker, head of insights at Carta, told TechCrunch. “So, fewer bets, but more capital. AI startups raise larger rounds not because they have a lot of employees — they don’t — but because the cost of running AI models is high.”

The latest Carta data also shows that funds raised in 2023 and 2024 (following the launch of ChatGPT in late 2022) had the highest internal rate of return (IRR), compared to the lower IRR for funds raised between 2017 and 2020. The report views the increasing internal rate of return over the past few years as a positive indicator for funds backing some of the leading startups emerging from this AI moment.

“It is promising that the newer funds have seen a strong start to their internal rate of return,” Walker said, adding that there are some factors to consider. For example, he said newer funds might look like they’re doing well on paper because if they invest in a seed round, for example, and that company goes on to raise a Series A at a higher valuation, then on paper it looks like the investor made high returns in a short period of time.

“This pushes the internal rate of return up,” Walker said. “It is also likely that more recent fund portfolios will be full of AI startups in a way that the 2020/2021 fund portfolios are not.”

Time will tell whether this early enthusiasm translates into real returns for investors via exits such as blockbuster IPOs or large acquisitions, with these returns being more widely spread to include young startups; Or if we are just in the hype phase of a bubble that will eventually burst.