VC funding for AI startups surged by 57.9%, with fewer deals, in Q1 2025 – report

Analysing data from PitchBook, CB Insights, and LIQUiDITY, a report (The State of AI Venture Capital in 2025) has revealed a dramatic shift in the Artificial Intelligence (AI) investment landscape.

While AI startups captured a record $73.1 billion in total funding, which represents 57.9% of the total $126.3 billion global VC funding in Q1 2025, the number of deals plummeted to a five-year low of 2,101, down from 2,516 in Q1 2024.

This paradox of fewer but larger investments signals a maturing market, tempered by investor caution amid high failure rates and ambitious claims.

The rise in VC funding has been meteoric. In 2015, AI accounted for just 8.6% of global VC deal activity, but by Q1 2025, that share soared to 27.8%, dominating 57.9% of total VC value. The global AI market, projected to hit $4.8 trillion by 2033, has fuelled this growth. OpenAI’s record-breaking $40 billion round led by SoftBank in Q1 2025 stands out.

The round valued OpenAI at $300 billion, positioning it as the world’s most valuable AI unicorn, trailing only ByteDance and SpaceX.

Yet, the report highlights a troubling trend: the decline in deal volume from 3,022 in Q1 2022 to 2,101 in Q1 2025 reflects waning enthusiasm for early-stage AI ventures.

The Q1 2025 data reveals a strategic pivot toward late-stage investments. OpenAI’s $40 billion infusion, alongside Anthropic’s $3.5 billion round led by Lightspeed Venture Partners (valuing it at $61.5 billion) and Infinite Reality’s $3 billion deal (boosting its valuation to $15.5 billion), dominate the landscape. 

Similarly, Safe Superintelligence, founded in mid-2024 by ex-OpenAI scientist Ilya Sutskever, secured $3 billion, reaching a $32 billion valuation without revenue.

These mega-deals contrast with the sector’s 90% failure rate for new AI startups within five years, a statistic that has spooked investors. The report cites Builder.ai’s insolvency, once a $1 billion unicorn backed by Microsoft and Qatar’s sovereign wealth fund, as a cautionary tale.

Accusations of manual coding masquerading as AI exposed vulnerabilities in due diligence, urging investors to scrutinise bold claims.

AI startup: Regional dominance and global trends

North America leads the log, accounting for 50.26% of global VC deal value and 89.3% of AI investment ($65.30 billion) across 1,056 deals in Q1 2025. Europe follows with $5.10 billion across 525 deals, while Asia, Latin America, and other regions contributed $2 billion, $200 million, and $500 million, respectively.

This concentration reflects North America’s robust VC ecosystem, home to 6,350 active investors and 15,556 deals in 2024.

However, the global VC deal count has collapsed by 32% year over one. year, from 11,000 in Q1 2024 to 7,551 in Q1 2025, the lowest in a decade. This mirrors a possible artificial intelligence slowdown.

Despite the drop, funding value rose from $98 billion in Q1 2024 to $126.3 billion in Q1 2025, the highest since 2022, driven by AI’s outsized share.

Investor caution amid market shifts

The decline in deal volume signals a shift in investor sentiment. BestBrokers attributes this to overhyped startups in the ecosystem failing to deliver monetisation paths, compounded by events like Deepseek’s January 2025 revelation of a cost-effective AI model rivalling ChatGPT.

This shook markets, prompting a reevaluation of resource-intensive projects. 

The report notes that VC firms are now prioritising proven players, with late-stage deals outpacing early-stage risks. SoftBank’s $100 billion Stargate Project, unveiled in January 2025 with U.S. President Donald Trump and OpenAI’s Sam Altman, exemplifies this trend, promising a $500 billion boost to the industry in the U.S.

Yet, the broader VC market’s 32% drop suggests a cooling across sectors, reminiscent of post-2021 corrections after a peak of $211.4 billion in Q4 2021.

Key players shaping the market

Major VC firms are doubling down on artificial intelligence. SoftBank, with $166 billion in assets under management (AUM), leads with its Vision Fund investments, while Andreessen Horowitz (a16z) manages $74.7 billion, backing ventures like Anysphere ($900 million) and Abridge ($300 million).

Tiger Global ($69.6 billion AUM) and Sequoia Capital ($60.5 billion AUM) also play pivotal roles, with Sequoia co-investing $6 billion in xAI alongside a16z and BlackRock. Lightspeed Venture Partners ($31.2 billion AUM) bolstered Anthropic and Yellow AI ($102 million), pushing the latter past $500 million.

These firms’ focus on scalable, revenue-generating AI underscores a maturing investment strategy.

Looking ahead, the artificial intelligence boom’s slowdown does not spell decline but a recalibration. The mass adoption of the tools in emerging markets like Africa hints at untapped potential, though it lags in VC funding.

The report warns that without innovation in monetisation models, the sector risks stagnation. Saudi Arabia’s $1.5 billion pledge to Groq, announced at LEAP 2025, signals emerging market interest, potentially reshaping global dynamics.