Business Dynamics and Investment

Startups and Small Business Innovation Research

Venture Capital

Although VC funds only a small share of new private firms and provides a small share of overall funding compared with the overall U.S. private-sector investments, the size and number of investments are indicators of innovation activity because they fund a disproportionate number of pre-revenue companies that ultimately make public offerings (Lerner and Nanda 2020). Venture investors secure capital from large institutional investors, called limited partners (e.g., pension funds, university endowments, private equity funds, foundations), to invest in selected firms. VC-backed firms that become publicly traded are more likely to have recorded R&D expenditures compared with publicly traded firms that were not originally venture backed (Lerner and Nanda 2020).

Between 2013 and 2021, worldwide VC investments grew from $71 billion to $694 billion before decreasing (53%) over the next 2 years to $327 billion in 2023. In 2024, worldwide VC investment increased to $354 billion (Figure TRN-28; Table STRN-37). The countries with the largest VC investments that year—the United States, China, the United Kingdom, India, Germany—each received its highest level of VC investment in 2021. Similar reporting also finds a peak in U.S. VC investment in 2021 (NVCA 2025). Between 2013 and 2024, firms in the United States consistently received the largest amount of VC investment. At their highest value in 2021, U.S. firms ($358 billion) received over twice the investment of firms headquartered in China ($145 billion). For a discussion of PitchBook’s international coverage, see the Technical Appendix.

VC funding generally consists of three stages of investment: seed stage, early stage, and later stage. Seed investment refers to the initial capital raised by a firm, often in exchange for equity in the company, from investors to support product development, staffing, and validation of a business model (Metrick and Yasuda 2021). In early stage investments, firms have typically entered development phases, with an existing product in testing, pilot production, or early release, and may be for 3 or fewer years (Metrick and Yasuda 2021). Later-stage VC generally invests in firms in their initial expansion or in a stable growth stage when they have an established product inventory and distribution system (Metrick and Yasuda 2021). Because seed-stage and early stage firms have a high rate of failure, venture investors deploy capital across a portfolio of these firms, expecting that one successful investment will compensate for those that yield no returns (Lerner and Nanda 2020).

Over half of VC investments in U.S. firms between 2003 and 2024 involved later-stage VC funding (Figure TRN-29). Early stage and later-stage VC funding followed a similar pattern to overall trends, growing from 2003 to a peak in 2021 before decreasing until 2024, while seed-stage VC peaked in 2022. Although seed-stage VC funding increased from $11 billion to $18 billion and early stage funding increased from $45 billion to $89 billion from 2020 to 2021, the peak in 2021 was driven by later-stage funding, which more than doubled from $118 billion to $251 billion and comprised 70% of VC investments that year. The share of early stage VC funding has gradually decreased, from 46% of VC funding in 2003 to 26% in 2024. The share of seed-stage VC funding has gradually increased from 0.5% in 2003 ($95 million) to 11% and $25 billion in 2022 before only a moderate decrease to 7% in 2024. However, the share of later-stage VC funding has also gradually expanded, from 53% in 2003 to 67% ($142 billion) in 2024.

VC investments can support firms developing CETs in the United States. The classification of CET areas developed by NSF TIP (see section Technology Transfer Metrics) was used to examine the share of VC investments funding these technologies in the United States (NSB 2024). Each year from 2013 to 2024, over half of all VC investments in the United States funded firms in CET areas, ranging between 52% and 67% (Figure TRN-30). (VC does fund a broader range of industries; see Table STRN-38.) VC investments in U.S. firms developing computer software consistently accounted for the largest share among all CET areas between 2013 and 2024, receiving over 80% of VC funding in CET areas and between 44% and 59% of all U.S. VC funding each year (Figure TRN-30). VC tends to fund software publishing or other industries with “large uncertainty about an idea’s potential that can nonetheless be resolved quickly” (Lerner and Nanda 2020). This observation may contextualize the differences in the share of VC invested in software publishing in the United States and the share of software publishing within total KTI nonmanufacturing value added in the United States (see the section U.S. Industries).^{​The classification of CETs discussed in this section differs from the ISIC-based KTI taxonomy discussed in the following section Production Patterns of Knowledge- and Technology-Intensive Industries.} VC funding for U.S. companies developing computer software peaked at $352 billion in 2021 and was $274 billion in 2024. 

Biotechnology received the next-largest share of VC funding among CET areas, from 2013 to 2024, accounting for between 6% and 9% each year. VC funding for U.S. firms engaged in developing and producing biotechnology products and services peaked at $32 billion in 2021 and was $17 billion in 2024. VC investments in U.S. firms developing and producing computer hardware, a CET area that includes semiconductors, also reached their highest level in 2021 at $12 billion and have since decreased to $8 billion in 2024. Table TRN-5 shows the 20 U.S.-based companies with the highest amount of VC raised in 2024. Many firms on this list strongly feature AI components in their offered products or services, including the top 5 firms: xAI, Databricks, Anthropic, OpenAI, and Waymo.