Equity Funding Update: AI Is Making Venture Investing Bigger and Narrower

By Andrea Giska, SBTDC Equity Program Specialist

The U.S. venture capital market has become increasingly concentrated, largely driven by the rise of artificial intelligence. A relatively small number of companies now account for a disproportionate share of total deal value, while a shrinking group of funds represents a growing portion of closed commitments. In 2025, the U.S. venture market reached approximately $250 billion through Q3, with AI accounting for more than 65% of total deal value according to a recent report by PitchBook ⁽¹⁾. While AI should not be viewed as a single, monolithic sector, this level of capital concentration underscores the scale of opportunity investors believe it represents.

This concentration is not limited to deal activity. New capital commitments have also become increasingly centralized. As venture firms move earlier in the company lifecycle and grow in fund size, capital has pooled into mega funds. Funds of $500 million or more now account for nearly 58.7% of total dry powder, up from 39.9% a decade ago. In contrast, smaller funds, which remain the largest group by fund count, now control just 16% of available dry powder according to PitchBook ⁽¹⁾. Together, these trends are reshaping both who receives capital and who controls it.

For founders operating outside core AI infrastructure and foundation model development, the implications are becoming increasingly clear, and increasingly challenging. Capital is not disappearing, but it is becoming more selective, more concentrated, and more risk-averse. As larger checks are deployed into fewer, perceived category-defining AI companies, fewer dollars remain available for early-stage experimentation, niche innovation, and non-AI sectors that historically benefited from broad-based venture diversification.

This shift is therefore altering fundraising dynamics in meaningful ways. Startups outside AI are facing longer fundraising cycles, heightened expectations around near-term traction, and greater scrutiny of capital efficiency. At the same time, investors managing larger pools of capital and targeting higher ownership stakes may find it difficult to justify smaller investments in companies that do not fit a high-growth, platform-scale narrative, regardless of their long-term fundamentals.

Still, opportunity remains. Periods of capital concentration often create openings for alternative funding models and differentiated investment strategies. For founders, success in this environment increasingly depends on clarity of vision, disciplined execution, and a thoughtful approach to capital needs, raising only what is necessary and partnering with investors who understand the nuances of their market.

Ultimately, AI is making venture investing bigger in headline numbers, but narrower in practice. Whether this concentration proves to be a temporary cycle or a lasting structural shift will shape not only the future of venture capital, but also which forms of innovation are able to reach scale in the decade ahead.

1. AI, Megadeals, and the Making of a Concentrated Venture market, report by PitchBook Dec 23, 2025.