AI Startup Funding Surges 75.6% in First Half of 2025 Despite VC Fundraising Struggles

U.S. startup funding has exploded in the first half of 2025, with AI companies driving an unprecedented surge that’s positioning this year to become the second-best ever for venture investment. U.S. startup funding surged 75.6% in the first half of 2025, thanks to the continued AI boom, putting it on track for its second-best year ever, even as venture capital firms struggled to raise money, a report from PitchBook on Tuesday showed.

The Numbers Tell a Stunning Story

Startup funding in the first six months of 2025 jumped to $162.8 billion, marking the strongest performance since the same period in 2021 — the historic peak for venture capital activity. The concentration in AI is remarkable:

AI startups received 53% of all global venture capital dollars invested in the first half of 2025, according to new data from PitchBook. That percentage jumps to 64% in the U.S.AI startups also comprise 29% of all global startups funded, and nearly 36% in the U.S.According to PitchBook data, artificial intelligence (AI) startups secured a 57.9% share of global venture capital investments in Q1 of 2025. This is a significant increase from the 28% the companies gained in the same period last year.Mega-Deals Dominate the Landscape

The funding surge has been characterized by unprecedented mega-rounds:

AI behemoth OpenAI raised a record-breaking $40 billion funding round that valued the startup at $300 billion. This round, which closed on March 31, was led by SoftBank with participation from Thrive Capital, Microsoft, and Coatue, among others.Shield AI, an AI defense tech startup, raised $240 million in a Series F round that closed on March 6.SandboxAQ closed a $450 million Series E round on April 4 that valued the AI model company at $5.7 billion.Details: Mira Murati-led Thinking Machines Lab raised $2 billion in a Series B round, valuing the company at $10 billion.The VC Fundraising Paradox

While startups are raising record amounts, venture capital firms themselves are struggling:

In contrast, U.S. venture capital fundraising continued to face headwinds, with just $26.6 billion raised across 238 funds in the first half of the year. This subdued environment represents a 33.7% year-over-year decline in capital raised, extending the downward trend from 2024.

The struggle is real:

It is also taking fund managers longer to close new vehicles, with the median time stretching to 15.3 months by the second quarter of 2025 – the longest in over a decade, data shows.The disconnection from the startup market reflects concerns from limited partners on the asset class due to recent underperformance and liquidity constraints.The FOMO Factor

One reason venture capitalists are piling into AI? They have a serious case of FOMO. “People tend to chase hot sectors. Venture is a very shiny object industry,” said Sarah Kunst with the venture capital firm Cleo Capital.

This fear of missing out has led to:

lots of startups that were first focused on fintech or e-commerce but use artificial intelligence for something are rebranding themselves as AI companies now. “Because you know that leaning into the AI story will help you raise money, will help your company get off the ground,” Kunst said.Geographic and Sector Concentration

The funding is highly concentrated:

Driven by activity in the IT sector, the Bay Area accounted for nearly 70% of all VC investment.Funding to Bay Area-based companies alone reached $55 billion, accounting for 69% of U.S. venture capital funding and 49% of global funding.In Q2, more than one-third of all U.S. venture dollars went to just five companies.Beyond Traditional Models: AI Application Layer Boom

Consequently, the focus of venture capital has moved away from offering money to funding applications made by start-ups dealing in artificial intelligence. In contrast to foundational model builders, these companies need less infrastructure and drive faster revenues. According to Dealroom.co, such startups received $ 8.2 billion in 2024, 110% more than in 2023.

Success stories include:

Cursor, Perplexity, Synthesia, ElevenLabs, and many others are amassing tens or hundreds of millions of dollars in annual recurring revenue.For instance, Anysphere, which introduced coding assistant Cursor in January, has sold a 7.25% equity stake for $105 million and may sell more at more than $10 billion. It has been reported to have nearly $200 million of its annual recurring revenue.Looking Ahead: Opportunities and Concerns

A rebound in exit activity, including IPOs and M&A, has brought a sense of optimism for the remainder of the year. Exit activity in the second quarter was up 40% from last year, as a loosening antitrust environment and a thawing IPO market boost confidence.

However, concerns remain:

“If all these companies are doing AI, are we missing out on potential innovation in other spaces?” asked Emily Zheng, an analyst at Pitchbook.

The bottom line: This year’s boom has been driven largely by major AI investments and bold bets from big tech companies, a wave of activity set off by the debut of ChatGPT in late 2022. While traditional VCs struggle to raise funds, AI startups are commanding unprecedented valuations and funding rounds, creating a two-speed venture market that’s reshaping Silicon Valley and beyond.

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