VCs Chase AI Wave with Caution Amidst Funding Recovery

Global venture funding in the first half of 2025 marked a significant turning point, registering the strongest six-month period for investment since mid-2022. This tentative recovery saw total global funding reach $91 billion in the second quarter alone, an 11% increase year-over-year, with artificial intelligence emerging as the unequivocal growth engine, demonstrating the largest year-over-year leap in capital deployed. As the industry looks towards the latter half of 2025, a key question remains: will this AI-driven momentum sustain, and what impact will the recent flurry of tech IPOs have on the private markets? To gauge the sentiment, Crunchbase News consulted with leading investors from Menlo Ventures, Founders Fund, Bain Capital Ventures, and Left Lane Capital.

Unsurprisingly, artificial intelligence dominated discussions among venture capitalists. Matt Murphy, a partner at Menlo Ventures, characterized the current funding environment as an “explosion,” attributing it to a widespread rush to “chase the AI wave,” with many firms playing catch-up. He views this as just the “early innings” for AI, predicting an acceleration of funding through the year, propelled by the unprecedented growth rates of AI application and infrastructure companies. Menlo Ventures itself made an early bet, investing in OpenAI competitor Anthropic’s $450 million Series C round in May 2023, and subsequently launched its $100 million Anthology Fund in partnership with Anthropic, which Murphy hails as a “big success.” Robert Windesheim, an investor at Founders Fund, echoed this enthusiasm, calling AI the “most important technology since the internet” and the primary driver behind increased capital deployment across venture and public markets. He anticipates this trend will continue for the next 12 to 18 months as AI models advance and new use cases emerge, particularly citing reinforcement learning on domain-specific data as a recent unlock for product innovation.

Despite the palpable excitement, some investors are approaching the AI boom with strategic caution. Abby Meyers, a partner at Bain Capital Ventures, acknowledged the “frenzy” but emphasized her firm’s deliberate approach, focusing on backing select companies within specific verticals rather than broadly chasing overhyped rounds. For instance, Bain Capital Ventures chose to invest solely in OpenAI among multiple foundational model labs. However, Meyers affirmed that AI will undeniably continue to play a pivotal role, unlocking significant opportunities. Menlo’s Murphy concurred, stating that virtually every pursuit his firm undertakes now incorporates a strong AI component as a differentiator, leading them to be “all in on AI.” This intense focus suggests that non-AI companies might face tougher fundraising conditions, although Murphy maintains that “good businesses will always be able to raise capital,” pointing to defense tech as another rising sector. Meyers further elaborated that while AI permeates nearly all of Bain’s investments, this doesn’t limit them to pure AI companies; they are backing AI solutions for diverse sectors such as law, customer service, sales, education, and compliance. Both Meyers and Windesheim foresee AI pushing growth in adjacent sectors across the broader value chain, including energy and semiconductors.

The rapid pace of AI innovation has also led to unprecedented valuation shifts. Harley Miller, founder and CEO of Left Lane Capital, noted that while the broader market saw a healthy recalibration of valuations post-2022, the current “craziness” in certain AI segments is pushing valuations to levels reminiscent of 2021, especially for business-to-business enterprise AI companies. This is evident in instances like Anthropic, whose valuation reportedly soared from $60 billion to $170 billion within six months. Murphy confirmed this trend, observing that many AI companies are now raising follow-on rounds in as little as six to twelve months, a stark contrast to the traditional two years or more. While this reflects strong market confidence, Murphy warned of inevitable “overfunding,” particularly in overcrowded and potentially undifferentiated AI sectors. He stressed the importance of investors being “smart about where to invest versus ‘playing the index’.” Despite these concerns, Windesheim predicts that continued market growth and the emergence of new markets will sustain these “up” rounds in the AI space, maintaining a positive market sentiment in the short to mid-term. Meyers added that valuations increasingly reflect a company’s trajectory between rounds; those demonstrating sustained growth, product innovation, and customer favor are securing higher valuations, while those lacking momentum see less significant markups.

The robust performance of venture funding, particularly in AI, naturally raises questions about the initial public offering (IPO) market. Despite ongoing macroeconomic uncertainties like tariffs and inflation, recent IPO successes have opened the door for more public debuts, though Meyers cautioned against expecting a “floodgate.” She pointed to strong “day-one pops” from companies like ServiceTitan, Chime, Circle, and Figma, which validated strong investor appetite for high-growth tech. Even firms with quieter debuts, such as CoreWeave, have delivered solid long-term performance. Blockbuster earnings from major tech companies heavily invested in AI further fuel market enthusiasm. However, Meyers tempered expectations, noting that few companies possess the unique combination of customer loyalty, growth, and high gross margins seen in a company like Figma. While the highest-quality companies should feel more confident about an IPO, the market remains selective.