AI Dominates as North American and Global Startup Funding Slows in Q3 2024

North American Startup Funding Weakened In Q3 As Largest Deal Took Longer To Close

The past quarter was a quirky one for North America startup funding, with a slowdown in some pockets counterbalanced by continued high enthusiasm around artificial intelligence, Crunchbase data shows. Overall, the number and size of funding rounds to North American startups slowed sequentially in the third quarter based on reported investments. However, the tallies did not include an enormous $6.6 billion financing for OpenAI that was widely reported in Q3 but only officially announced this week. In total, investors put $40.5 billion into startups across all stages in Q3. That's a decline of 10% from the prior quarter and an increase of 22% from year-ago levels. Late-stage dealmaking showed the largest gains, while early-stage funding posted the steepest sequential decline. For perspective, we charted investment totals, color-coded by stage, for the past 11 quarters below. Investments were also spread across fewer deals. Known round counts across all stages totaled around 2,065 for the quarter -- down both sequentially and year over year. Investors' appetite for artificial intelligence deals stayed strong in Q3, with nearly $15 billion invested in the space in North America alone. That's a bit below the prior quarter's tally, but would have been much higher had OpenAI announced its latest financing just a few days earlier. Below, we chart out how investment in AI-related startups compared over the past seven quarters. Beyond big rounds, the just-ended quarter also provided a few good-sized exits. While the IPO market wasn't especially active, we did see a handful of public offerings, predominantly in the biotech sector. There were also some large acquisitions for startups focused on enterprise software, cybersecurity and other areas. Below, we break down how investment trended at each stage. We also look at the largest exits for the quarter, including both M&A and IPOs. We'll start with late stage, which, as usual, took in the largest share of funding. A total of $23.8 billion went to late-stage and technology growth deals in Q3 of 2024. That's an increase of 28% from the prior quarter and 19% from year-ago levels. Round counts totaled 246. That was up a bit from the prior quarter, and roughly flat with Q3 of 2023. Below, we chart both round counts and total investment for late-stage and technology growth deals over the past five quarters. The rise in total investment was largely due to a single deal -- Alphabet's $5 billion July investment in autonomous driving spinoff Waymo. But since that was categorized as a corporate investment rather than a venture capital round, it doesn't serve as a strong indicator of the broader venture funding climate. Early-stage investment declined some in Q3, with $13.5 billion in total funding, per Crunchbase data. That's a decline of 39% from the prior quarter and roughly flat with year-ago levels. Round counts, meanwhile, were down slightly. For a bigger picture view we chart out total early-stage investment and round counts for the past five quarters below. It should be noted that Q2's high early-stage tally was largely due to a single $6.4 billion round for Elon Musk's artificial intelligence startup, xAI. Without that deal, the Q3 decline would have been much less pronounced. Meanwhile, Q3 included a number of large early-stage deals. The largest such round by a long shot was a $1 billion September financing for Safe Superintelligence, an AI research lab co-founded by former OpenAI chief scientist Ilya Sutskever. The round reportedly valued the Palo Alto, California-based company at $5 billion. Other big rounds included a $370 million September Series A for San Diego-based Candid Therapeutics, a developer of therapies for autoimmune diseases, and a $300 million July Series A for Pittsburgh-based Skild AI, a developer of software to power robots. Overall, there were 17 early-stage rounds of $100 million or more in Q3, a majority of which went to biotech startups. Seed investment declined some in Q3, with $3.3 billion invested across nearly 1,207 known rounds. We expect round counts to rise in coming months, however, as more deals are entered into the database. Overall, Q3 investment totals were the lowest in years. Below, we charted out how round counts and investment totals compared over the past five quarters. We saw a few large acquisitions announced during the quarter in sectors from cybersecurity to biotech. Standouts include: The third quarter was a slow period for technology IPOs, but we did see some biotech debuts, including: Overall, as we look back at Q3, the adjective "unusual" comes to mind as more descriptive than the usual terms like "bullish" or "bearish." Venture investors aren't exactly down on the asset class, but they have pulled back on once-popular themes like consumer products, e-commerce and the so-called legacy cloud. But the AI engine keeps revving, and investor dollars continue to pile up for hot names in the space. The exit environment isn't especially buzzy, but large-ticket M&A deals haven't dried up entirely, particularly for more established startups with breakthrough technology or steady revenue. And while the tech IPO market remains largely dormant, there's still talk of a pickup in the latter half of 2025. That isn't terribly distant for the venture exit horizon. The data contained in this report comes directly from Crunchbase, and is based on reported data. Data is as of Oct 2, 2024. Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year. Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price. We have made a change to how we include corporate funding rounds in our reporting as of January 2023. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round. Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less. Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million. Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the "Series [Letter]" naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million. Technology growth is a private-equity round raised by a company that has previously raised a "venture" round. (So basically, any round from the previously defined stages.)

Global Funding Slowed In Q3, Even As AI Continued To Lead

Global venture funding in the third quarter of 2024 reached $66.5 billion, Crunchbase data shows. That's down 16% quarter over quarter and 15% year over year from the $78 billion invested in Q3 2023. We are now nine or 10 quarters into the current startup funding decline. This past quarter was the second below the $70 billion mark since the start of the current venture funding downturn, according to Crunchbase data. Outside of Q4 2023 and this past quarter, one would need to go back to 2017 to find another quarter below $70 billion. But Q3's numbers don't necessarily signal a further pullback in venture funding moving forward, as we've seen large fundings fluctuate quarter over quarter this year and last, skewing overall numbers. In Q3, the steepest decline year over year was seen in late-stage funding and was most evident in the largest rounds, those $500 million and above. The concentration of venture dollars that went to the largest rounds -- those of $100 million or above -- was also slightly lower in Q3, at about 46%, compared to about 50% in Q2 and the third quarter of last year. AI was the top sector by dollars invested in the third quarter, with funding to artificial intelligence startups reaching close to $19 billion, or 28% of all venture dollars, Crunchbase data shows. Funding to companies in AI has grown in 2024 by both absolute dollars invested and proportion. Last quarter was the second-largest quarter for AI funding since the mainstream launch of OpenAI's ChatGPT in November 2022, behind only Q2 2024. AI surpassed healthcare and biotech, the second-largest sector, which raised more than $15 billion. Hardware, the third-largest sector, raised more than $13 billion. Financial services companies, meanwhile, raised close to $8 billion. The largest funding deals in Q3 were all over $500 million: Late-stage funding reached $34.7 billion, flat quarter over quarter and down from $46 billion in the third quarter of 2023, Crunchbase data shows. The biggest change in Q3 from a year earlier was a decrease in the amount invested in deals above $500 million. Last quarter, large fundings went to autonomous driving, defense tech, professional services, semiconductor and AI model companies. Early-stage funding reached $24.7 billion, down quarter over quarter in large part due to the $6 billion Series B funding to Elon Musk's OpenAI competitor xAI in the second quarter, which skewed those numbers upward. (On Wednesday, two days into Q4, OpenAI officially announced its own $6.6 billion raise that values it at more than $150 billion.) Year over year, early-stage funding was flat. By far, large early-stage rounds were dominated by AI and biotech. Seed funding reached $7 billion in Q3, down quarter over quarter and year over year, Crunchbase data shows. (Though it's worth noting, there is typically a gap as many seed fundings are often added to the Crunchbase dataset after the close of a quarter.) The majority of seed funding -- around $6.8 billion -- was invested in fundings of $1 million and above, across more than 1,500 companies globally. Year-to-date, venture funding is down around 7% year over year. Based on an analysis of global funding through the third quarter compared to the same timeframe in 2023, seed funding year to date appears flat, (but is likely to show an uptick as seed rounds are added after the quarter-end), early-stage funding is trending up by around 10%, and late-stage funding is down around 20%. While venture seems to be in a holding pattern year over year, the underlying dynamics of the industry are shifting as fundraising for venture funds slowed down in 2024. With fewer funds, the impact will be seen at the earliest stages of funding moving forward. The data contained in this report comes directly from Crunchbase, and is based on reported data. Data is as of Oct 2, 2024. Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year. Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price. We have made a change to how we include corporate funding rounds in our reporting as of January 2023. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round. Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less. Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million. Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the "Series [Letter]" naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million. Technology growth is a private-equity round raised by a company that has previously raised a "venture" round. (So basically, any round from the previously defined stages.)

Eye On AI: AI's Torrid Pace Of Funding Continues

This column is a look back at the week that was in AI. Read the previous one here. Investors still can't get enough of AI. That's the most obvious takeaway from a quick glance of funding numbers for the just-completed third quarter. In Q3, AI-related startups raised $18.9 billion, per Crunchbase. That is the second-largest quarter for AI funding -- behind only Q2, which saw $23.4 billion invested -- since the launch of ChatGPT in November 2022. While the third-quarter number represents a 19% drop from the second quarter, it is also a nearly 30% increase from last year which saw "only" $14.6 billion invested in AI-related startups. With nearly $19 billion raised, there were, of course, some big rounds -- including: Despite those big rounds, last quarter lagged behind Q2 likely because the latter had more extremely large $500 million-or-more rounds. In fact, Q2 witnessed twice as many -- eight -- and three times as many $1 billion-plus rounds. That obviously included Elon Musk's generative AI startup, xAI, which officially announced its long-rumored $6 billion round at a $24 billion valuation that included investment from Valor Equity Partners, Vy Capital, Andreessen Horowitz, Sequoia Capital, Fidelity Management & Research Co., Prince Alwaleed Bin Talal and Kingdom Holding Co., among others. Another interesting thing to note about the third-quarter numbers -- aside from the massive dollar figure -- is that deal flow actually is down. In fact, deal flow has declined the past two quarters and in Q3 dipped under 1,000 rounds for the first time since ChatGPT launched. Deal flow fell from 1,211 rounds announced in Q2 to only 947 in Q3 -- a 22% decline. That drop is even more massive when looking at last year's Q3, which saw 1,444 investment deals -- 34% more than last quarter. With the dollar total going up and deal flow numbers dropping, that likely means more big deals for more proven AI startups (or at least those that can convince investors of their AI chops) and fewer early seed and Series A deals for young startups. Such a scenario is likely when one considers investors only have so much money to place bets on AI startups, and with big valuations associated with those big rounds, that money can dry up quickly. Don't expect the dollar amount to drop much in Q4. On Wednesday, OpenAI officially announced its long-awaited $6.6 billion raise, led by Thrive Capital, at a post-money valuation of $157 billion. There are also reports OpenAI rival Anthropic is looking for more cash very soon. With so many generative AI startups (the ones raising the really big rounds) burning through so much cash so quickly, we may continue to see big venture dollar totals for the next several quarters even as the number of fundings continues to cascade downward.