Venture capital market shows K-shaped split as AI dominates funding

The venture capital market is increasingly bifurcated, showing a distinct “K-shaped” trend—a market divergence where different sectors experience highly unequal outcomes. According to data from financial platform Carta, artificial intelligence startups accounted for 41% of the $128 billion in total venture dollars raised by companies on the platform last year. This record-high annual share highlights how heavily investment has shifted toward a single sector.

This capital is highly concentrated, with just 10% of startups accounting for half of all funding. This concentration is driven by massive rounds for a handful of AI companies, which contributed to a broader global venture landscape where $189 billion in venture capital was raised last month. Key transactions include:

• xAI: Raised a $20 billion Series E late-stage funding round in January.
• OpenAI: Secured a $110 billion round in February, bringing the company closer to a $1 trillion valuation target.
• Anthropic: Raised a $30 billion Series G late-stage funding round last month at a $380 billion valuation.

Peter Walker, the head of insights at Carta, noted that while funding rounds have become slightly harder to raise, the capital allocated to each round has increased, meaning investors are making fewer bets but committing more capital. He explained that AI startups require larger rounds because the cost of running AI models is high, not because they have many employees.

This concentration of capital has also impacted fund performance. Funds raised in 2023 and 2024—following the launch of ChatGPT in late 2022—have posted the highest Internal Rate of Return (IRR), a metric used to evaluate the profitability of potential investments. “It’s promising that the younger funds have seen IRR start strong,” Walker said. However, he cautioned that these newer funds might look like they are doing well on paper because of how valuations are marked up between funding rounds. While this pushes IRR up, Walker added that the portfolios of these recent funds are likely full of AI-native startups, unlike those raised in 2020 and 2021.

Why it matters

The venture capital market is experiencing a K-shaped bifurcation where capital is heavily concentrated in a few AI startups, driving high valuations and strong early IRR for recent funds, while raising questions about whether this is a sustainable trend or a bubble.