Volatility vs. Vision: Capturing the AI Growth Story Through Venture Capital

Investors are grappling with extreme market volatility, fueled by policies and signals from the Trump administration that complicate long-term financial planning. In response, advisors are focused on protecting client assets. Some are turning to tactical strategies, while others are staying the course with longer-term investment plans.

Despite fears over tariffs and recession risks, there is a structural growth story that stretches beyond the current cycle: using venture capital to capture the benefits of artificial intelligence.

Despite U.S. venture firms raising only $76 billion in new funds in 2024, the smallest amount in five years, according to PitchBook data, those same firms - flush with cash they had already collected in previous years - deployed $209 billion into U.S. startups last year, up almost 30% from 2023. AI companies absorbed a record 46.4% of that total, compared to less than 10% a decade earlier.¹

This theme is continuing into 2025. Q1 2025 was the strongest quarter for AI funding ever, with 53% of global funding going to the AI sector, according to Crunchbase data.² TechCrunch reported in April that 19 US AI startups, focused on areas such as generative AI, infrastructure, hardware and legal technology, have already raised $100 million or more since January,³ a sign of optimism in the sector.

However, AI’s true potential cannot be measured through quarterly funding cycles and instead is better viewed through a lens of decades-long innovation. AI is the latest in a line of significant technology platform shifts that include the development of personal computers, smartphones, the cloud and software-as-a-service.

The present moment is an opportunity for investors with a long-term vision to gain exposure to technology companies that have the potential to fundamentally alter every industry and yet are still in their infancy with relatively attractive entry points. The democratization of alternative investments, driven by fintech platforms that provide financial advisors with access to venture capital funds, means that investments once solely available to institutional investors can now be included in the portfolios of individual investors (albeit high net worth individuals and in some cases mass affluent investors). Additionally, the rise of venture capital secondaries, which involves the buying and selling of pre-existing investor commitments in sponsor-backed companies, is providing another avenue through which to access promising compelling venture-backed AI companies. Secondaries investing mitigates some of the risks associated with early-stage investing and offers a way for investors to access companies traditionally inaccessible through direct investment or via a primary fund investment.

For financial advisors seeking to give clients exposure to AI‑focused venture capital, the task has two parts: first, determine if the client’s goals, risk tolerance and liquidity horizon are truly compatible with an allocation to this high‑risk, illiquid asset class; second, if the answer is yes, source and gain access to the most suitable AI venture funds to meet the client’s objectives.

Regarding client suitability, venture capital investments in AI are best suited to sophisticated high net worth individuals who already have core tech exposure through public markets and are now looking to diversify with decorrelated alternative investment with high-upside potential. Crucially, these clients should understand the illiquidity premium associated with these investments, as well as the possibility of capital loss.

Then, the next step is to select a venture capital firm with the necessary sector expertise and track record to evaluate the winners and losers in AI.

Short-term volatility should not overshadow long-term opportunity. AI is reshaping numerous industries, and the venture capital asset class remains one of the best ways investors can potentially capitalize on this generational opportunity. For advisors, understanding the evolving dynamics of this market, who it is suitable for, and how to access it, is key to ensuring you can help your clients build portfolios that are both resilient and future-ready.

Sources:

1. Hu, Krystal. Reuters. Jan. 7, 2025. AI startups drive VC funding resurgence, capturing record US investment in 2024.
2. Teare, Gene. Crunchbase News. Apr. 3, 2025. Q1 Global Startup Funding Posts Strongest Quarter Since Q2 2022 With A Third Going To Massive OpenAI Deal.
3. Szkutak, Rebecca. TechCrunch. Apr. 23, 2025. 9 US AI startups have raised $100M or more in 2025.