AI Investments Are Booming, but Venture-Firm Profits Are at a Historic Low

Silicon Valley's venture-capital firms are having an easy time finding promising startups to back. The hard part is cashing out. From a report: Last year, U.S. venture firms returned $26 billion worth of shares back to their investors, the lowest amount since 2011, according to the data provider PitchBook. Startup investors say 2024 has continued the trend, with high levels of investment and few acquisition deals or initial public offerings. 'We've raised a lot of money, and we've given very little back,' Thomas Laffont, co-founder of investment firm Coatue Management, said at a recent conference. 'We are bleeding cash as an industry.'

Last year, U.S. venture firms invested $60 billion more than they collected, the highest such deficit in PitchBook's 26 years of data. As a result, the investors that back VC firms, such as university endowments and pension funds, aren't seeing the type of profits the industry has long delivered. The decline is particularly notable because the past three years have been the highest three on record for total VC firm investments since 1998 -- as far as back as the PitchBook data goes. Much of that money has recently gone to artificial-intelligence startups -- a white-hot space in which valuations are rising fast and companies quickly burn through cash to develop new technology.

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