How AI is driving the venture capital market
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Artificial intelligence is keeping the venture capital ecosystem afloat. It accounted for more than 40% of new private U.S. "unicorns" in the first half this year, and over 60% of the increase in total venture-backed valuation, per PitchBook.
The big picture: There were 13 new U.S. AI unicorns — private companies that reached valuations of over $1 billion — between Jan. 1 and June 25 of this year.
- Elon Musk's xAI on its own added $24 billion in valuation, while all AI unicorn companies combined added $116 billion in aggregate value.
- Overall U.S. unicorn value has grown by $162 billion so far this year.
Follow the money: Over the past few years, AI accounted for about 15%-17% of venture dollars invested in North America and Europe. That number increased to about 20% in 2023 and is rising even more in 2024, according to PitchBook senior emerging technology analyst Brendan Burke.
Yes, but: Even AI wasn't immune to the exuberance seen 2021.
- "There's an entire universe of 40,000 companies that incorporated machine learning into their applications, and many that were funded during the bull market haven't achieved their goals," says Burke.
- "Those megadeals from the late bull market haven't sustained their valuations."
Zoom in: Inflection, which last year raised $1.3 billion at a $4 billion valuation, struggled to find a sustainable business model, and its founders joined Microsoft earlier this year while the startup pivots to selling tech to businesses.
- The founders of Adept, which was valued last year at $1 billion, have similarly departed to join Amazon. Adept still hasn't publicly released a product.
The bottom line: VCs' interest in AI is only growing.
