Jan 7 (Reuters) - Artificial intelligence startups have

contributed significantly to the recovery of U.S. venture

capital funding from market lows, with the total capital raised

in 2024 nearly 30% higher year-on-year, according to PitchBook

data released on Tuesday.

AI startups also captured a record 46.4% of the total $209

billion raised last year, compared to less than 10% a decade

earlier.

The enthusiasm for AI technology, largely sparked by the

breakout success of OpenAI's ChatGPT since late 2022, has helped

revive venture capital funding after companies sought to

establish true valuations in the post zero-interest-rate

environment.

From foundation models to applications, AI has captured both

investors' imaginations and their money. Outsized funding rounds

by AI companies, many of which remain unprofitable, such as $6.6

billion for OpenAI and $12 billion for Elon Musk's xAI,

underline investor optimism about the sector's potential.

But analysts say it is uncertain whether the enthusiasm,

especially for foundation model firms that require substantial

capital for computing power and talent, will be sustained.

"The AI/LLM companies did enjoy a historically rich funding

environment. Most raised multiple rounds at exponentially higher

valuations last year. They will need to smash very significant

business milestones this year to continue enjoying unlimited

access to infinity capital," said James Cross, managing director

at Franklin Venture Partners.

Among venture capital funds some $76 billion was raised in

2024, the lowest in five years, with major funds like Andreessen

Horowitz and General Catalyst securing major pieces of the pie.

Exits also remain challenging. Exit value in 2024 was $149.2

billion, above the seven-year low of $120 billion in 2023, but a

fraction of 2021's $841.5 billion.

The IPO market did not recover as quickly as investors had

hoped, though some year-end listings such as ServiceTitan ( TTAN )

helped rekindle some optimism. The incoming

administration of U.S. President-elect Donald Trump, with tech

executives' involvement and tech and business friendly policies,

is expected to set the stage for a renewed M&A and IPO market.

"With the caveat that 2024 and 2023 were so anemic with

exits, it's hard not to see upside from there," said Brijesh

Jeevarathnam, global head of fund investments at Adam Street

Partners, who expects more VC-backed companies to be listed in

the second half of 2025.