It’s AI or, well, not much as venture capital becomes two-tiered market

Venture capital investment in artificial intelligence reached a historic milestone in 2025, with nearly $193 billion flowing to AI startups—the first time since the dot-com bubble that more than half of global VC dollars went to a single sector. This unprecedented concentration is creating a two-tiered market where AI companies secure massive funding rounds while other industries face increasingly scarce capital, potentially reshaping the entire startup ecosystem.

The big picture: The venture capital landscape has become starkly divided between AI-focused firms and everyone else, with only 823 funds raising $80 billion globally in 2025—a dramatic drop from 4,430 funds raising $412 billion in 2022.

What they’re saying: “You’re in AI, or you’re not. You’re a big firm, or you’re not,” said Kyle Sanford, director of research at PitchBook, a venture capital data provider, capturing how the market has become increasingly polarized.

• “Backers of venture funds and partners of VC firms are being more deliberate about where they’re putting their money,” Sanford explained, noting the shift toward larger checks into fewer firms with clear AI exposure.

Key funding rounds: Several AI companies have secured massive investments this quarter, demonstrating the sector’s magnetic pull for capital.

• Anthropic, an AI safety company, closed a multibillion-dollar raise at a valuation above $180 billion.
• Elon Musk’s xAI also secured billions in funding.
• Vercel raised $300 million at a $9.3 billion valuation.
• Supabase raised $100 million at $5 billion.
• DualEntry pulled in $90 million in its Series A.
• Anaconda raised $150 million in July.

Why this matters: The capital concentration around AI infrastructure and developer platforms reflects investor belief that these companies are central to AI’s future, but it’s creating significant downstream effects for the broader startup ecosystem.

Risks to other sectors: Non-AI startups are finding it increasingly difficult to compete for venture dollars as AI siphons capital away from other technology sectors.

• Companies in healthcare, mobility, and climate face slower deal cycles and smaller funding rounds.
• The pipeline of early-stage startups risks thinning out as investors concentrate larger checks into established names rather than seed or Series A bets.
• AI’s capital-intensive nature—with Citi projecting global AI infrastructure spending could exceed $2.8 trillion through 2029—is drawing resources not only to model developers but also to adjacent players in chips, cloud, and physical infrastructure.

Corporate spending reality check: Despite the massive venture investment, enterprise AI budgets are showing signs of restraint as companies grapple with return on investment concerns.

• Only 26.7% of finance leaders plan to increase generative AI budgets in 2026, down from 53.3% a year earlier.
• Half of firms reporting strong returns will expand spending, while just 16.7% of those seeing negligible ROI intend to do so.
• This split reflects what PYMNTS calls the “ROI paradox”—adoption is soaring and infrastructure spending is forecast to reach trillions, but the economics have yet to catch up.