Venture Capital Landscape Undergoing Consolidation
The U.S. venture capital (VC) market is experiencing a significant shift, with a decline in the number of active investors since 2021. The Financial Times reported on January 1, 2025, that cautious financial institutions are increasingly directing their investments toward the largest startups in Silicon Valley. This consolidation is reshaping the venture landscape, impacting smaller firms as power concentrates among a select group of major VC firms.
In 2024, the number of active VC investors in U.S.-based companies fell to 6,175, a notable decrease from the 8,315 recorded in 2021, according to data from Pitchbook. As a result, larger firms are gaining control, impacting the dynamics of the venture market. This trend allows companies like OpenAI and Stipe to remain private for extended periods while reducing funding avenues for lesser-known companies.
Concentration of Power
Over half of the $71 billion raised by American VCs in 2024 was secured by just nine firms. Four of these, including General Catalyst, Andreessen Horowitz, Iconiq Growth, and Thrive Capital, collectively raised more than $25 billion during the year. Small firms are struggling to deal with this trend.
John Chambers, the former CEO of Cisco and founder of startup investment firm JC2 Ventures, told the FT that consolidation is taking place. He predicted that while companies such as Andreessen Horowitz will continue to thrive, firms that did not achieve substantial returns in the low-interest-rate environment before 2021 will face a tougher market.
AI’s Growing Dominance in VC
Reports from HSBC Innovation Banking highlight a parallel trend: a growing emphasis by U.S. VCs on investing in artificial intelligence (AI) companies. The bank’s quarterly technology sector report, “Innovation Horizons,” revealed that the capital invested by American venture investors in AI startups is nearing the levels allocated for the rest of the venture market.
In 2024, 42% of U.S. venture capital was directed towards AI companies, up from 36% in 2023 and 22% the previous year. As of 2024, 20 AI companies had each secured funding of at least $2 billion.
Dave Sabow, Head of HSBC U.S. Innovation Banking, noted that while venture capital has always been attracted to revolutionary industries, the current level of concentration within a single category is unprecedented.
