18. Februar 2025
Capital connections: a framework for AI company founders making investment and exit decisions
Corporate and venture capital investment in AI start-ups has proven robust in turbulent times. Companies delivering tangible value and real-world solutions continue to attract favourable funding options. How should founders balance investment decisions against company goals, long-term vision and potential exit strategies?
Corporate-backed AI businesses line up M&A exits
Large corporate investors play a pivotal role in scaling next-generation AI. Between 2019 and 2023, AI businesses with corporate investment accounted for *more than a third (35%) of all M&A deal targets in the UK, US, and Germany. Over the same period, the acquisition of corporate-backed AI ventures grew *31%, compared to 13% in AI M&A overall.
Generative AI businesses are also among the dominant targets for the largest corporate venture capital (CVC) deals. Prime examples are Microsoft's $10 billion investment in OpenAI and its participation in a $1.3 billion round for Inflection AI alongside Nvidia.
The rise in AI CVC funds and deals is not limited to tech giants. Visa launched its GenAI fund in October 2023 to finance start-ups integrating the technology into commerce and payment products. T-Mobile Ventures launched its second fund in September 2023, adding AI to its 5G-focused technology investments.
VCs dominate AI investment
Venture capital is the driving force behind AI innovation and growth, preparing start-ups for successful exits. In 2023, *47% of all AI deal value was VC-backed, and *55% of AI businesses acquired over the last five years had VC investment.
Generative AI remains a big bet for VCs, focused on real-world applications in key verticals and financially stable companies. PitchBook reported that more than a quarter of the capital invested in health tech in Q2 of 2023 went to companies specialising in generative AI – illustrating the shift from pure tech innovation to native solutions.
We are witnessing a shift in venture capital investments toward companies that combine robust AI technologies and strong business fundamentals. As the market matures, VCs will back AI start-ups with a clear path to profitability and long-term growth. This transition underscores a change in investor mindset, prioritising substance over hype.”
Josef Fuss, Partner, Taylor Wessing
Weighing investment decisions
The funding environment looks good for AI companies that provide clear value and solve actual problems. But how do founders decide what investment is right for their business and when? Corporate backing, venture capital, or both? As with any strategic decision, AI founders must consider trade-offs dictated by their goals, growth strategy and exit plan.
In a dynamic landscape, early-stage companies focusing on refining their technologies can significantly benefit from the patient capital and vast resources corporate backing offers, including access to proprietary data sets, industry expertise and established routes to market.
However, as these start-ups mature and shift towards market entry and expansion, venture capitalists' agility and extensive networks become invaluable, accelerating growth and facilitating a wider range of exit strategies.
Balancing the strengths of corporate and venture capital funding at different stages of growth can offer start-ups a robust foundation for both development and commercialisation.
Deciding to accept investment comes down to timing. start-ups should evaluate their current financial needs, strategic growth trajectories and the potential for more advantageous terms with a longer runway. The ideal time for VC funding is often when a start-up is ready to scale rapidly. Capital infusion can fund acquisitions, product development and aggressive market expansion. On the other hand, corporate investment may be more appropriate in the earlier stages, particularly for companies keen to explore and validate their solutions. These early partnerships can serve as crucial market signals, boosting a start-up’s credibility and customer acquisition.”
Josef Fuss, Partner, Taylor Wessing
Weighing your investment options
Early-stage:
- Focus on product development: If your primary challenge is refining technology, early-stage startups might benefit from the patient capital that corporate backers offer.
- Access to data and expertise: Insufficient data can be a major hurdle for AI businesses. A corporation with rich datasets can provide a head start and industry-specific expertise that supports faster testing, deployment and sales.
- Long-term vision: For startups focused on developing cutting-edge AI technology with a longer time horizon for commercialisation, corporate backing can provide the stability and resources needed to reach their goals.
Late-stage:
- Scaling and commercialisation: VCs can help startups scale rapidly and reach a larger customer base once a product is developed and ready for market.
- Access to industry connections: VCs often have extensive networks that can help with business development, partnerships and customer acquisition.
- Shorter time horizon for exit: Venture capital may be more suitable for founders seeking a faster exit or an IPO.
Growth-stage:
- Market validation: Corporate backing can provide validation by association, signalling to the market that your technology is credible.
- Funding for expansion: VCs are critical at this stage, offering the substantial capital needed to aggregate and analyse larger datasets or to refine and launch new AI services.
- Exit flexibility: With a mix of corporate and venture capital investment, startups may have more options for exit strategies, such as acquisitions or IPOs.
*PitchBook Data, Inc.; Data has not been reviewed by PitchBook analysts.
