Venture Capital Landscape: Mid-2024 Trends and Startup Outlook

Midyear Forecast: Top Trends To Watch In H2 2024 -- From Chips To AI Funds

So far, 2024 has proceeded very much like 2023 in the startup world. AI is still the dominating talk of venture capital, funding is slightly up but most seem unsure if that's a trend or a passing moment, and the IPO window is still only a bit ajar. What may happen in the second half? Well here's a look at five trends Crunchbase News' editors and reporters have been watching this year. Take them with a grain of salt -- late last year we said AI valuations may come down. It seemed like for most of last year everyone pointed to 2024 as the year M&A would make a big comeback after several quarters of being down. That big comeback just isn't happening -- at least not for VC-backed startups. In fact, M&A is down through the first half of this year, with only 904 deals involving startups consummated, per Crunchbase data. There were more than 1,000 in H1 last year. The reasons are varying -- from interest rates to regulations to valuations still being too high -- but the takeaway is that deals just aren't getting done. Sure, there are some, including two $3 billion deals in Q2: Merck buying privately held biotech EyeBiotech for as much as $3 billion, and Hg buying AuditBoard for more than $3 billion. But there just haven't been a lot. While valuations have come down, apparently it has not been enough for buyers in the market. In addition, the November election hangs over everything -- and buyers are likely to see what the regulatory atmosphere is expected to be like after the outcome before making a big acquisition (although it seems one can expect a slow antitrust regulatory process no matter what happens). There are, however, some reasons to be optimistic about an M&A revival. The valuation reset that occurred after the market correction in 2022 and 2023 has had some time to settle. Now acquirers have a much better idea of what they're willing to pay for a company, and acquirees have a clearer sense of what they'll accept. Also, the historic backlog of unicorns that have not yet exited means there is a large supply of strong, still-private companies for acquirers to pick from. Perhaps a big deal will jumpstart the market (like the now dead Google/Wiz may have if it hadn't collapsed). But haven't we been saying that for a while? Chipmakers have been in the news recently as trade sanctions and stock prices have made headlines. However, chipmakers also have caused a stir due to some of the big cash they've raised -- or are about to raise. Semiconductor startup funding was up about 25% through the first half of this year as VC-backed companies raised about $5.5 billion, per Crunchbase data. The number includes huge rounds by the likes of PsiQuantum, Celestial AI and Etched.ai. Just last week, both DreamBig Semiconductor and Halo Industries raised good-sized rounds. Of course, what is leading to this renewed investor interest in chipmakers is AI. Folks are looking for specialized generative AI chips that are more cost-effective and energy-efficient, but also faster. Artificial intelligence is the driving reason chip giant Nvidia is now a $3 trillion-plus company. And while shares of Astera Labs are off their highs, they are still well above their IPO price from March. Investors do not expect things to slow down. While investing in semiconductor startups is highly specialized, those in the field say there is renewed interest and increased competition on deals. More big rounds could be on the way, as it has been reported smartphone-maker Samsung is leading a round of at least $300 million for Toronto-based AI chip startup Tenstorrent, and Groq is looking to raise a fresh $300 million. Also, it has been reported that artificial intelligence chips startup Cerebras Systems has filed confidentially for an initial public offering. It's a good time to be an AI chip developer. Everybody's mind is on chips right now -- and that's unlikely to change. Funding to AI-related companies surged this past quarter, the highest since the launch of ChatGPT. Funding almost doubled year over year and quarter over quarter to $24 billion. Meanwhile, concerns from venture spread with the massive capital expenditure required to invest in GPUs to fund this innovation, without clear revenue in sight. Proportions were up as well. So far this year, 1 in 4 dollars invested went to AI-related companies. In 2023, AI-related startups raised just under 1 in 5 dollars. Will the increase continue? Our findings show that global funding was choppy quarter over quarter, driven by the size and number of mega rounds of $100 million or more. AI is no different. Funding might come down, but the pervasive influence of AI will continue. Menlo Ventures and Anthropic announced a new $100 million joint AI fund, named Anthology. Could this be the latest version of a scout fund as venture firms compete to get access to deal flow through well-connected operators? The fund brings together the sourcing of investments by large language model developer Anthropic with the support of a seasoned venture capital firm, in this case Menlo Ventures. For startups with high infrastructure investment costs, debt financing has long been a popular option. And in recent months, we've seen some historically large debt rounds. To illustrate, we used Crunchbase data to aggregate a list of six venture-backed companies that raised debt financings of $1 billion or more this past year. Large project financing rounds are particularly prevalent for the cleantech space. In January we saw Swedish companies raise two of the largest debt financings: Sustainability-focused battery manufacturer Northvolt landed $5 billion, and steelmaker H2 Green Steel closed on $4.6 billion. In the tech sector, meanwhile, AI cloud infrastructure startup CoreWeave secured $7.5 billion in debt financing in May. Looking forward, with interest rate cuts widely expected in coming months, debt financing could look increasingly attractive. Additionally, given the large supply of companies that raised huge sums of equity funding a few years ago, debt financing offers a less dilutive way to capitalize companies for further scaling.

The Q2 State Of Startups In 7 Charts

Two years into a venture funding slowdown, a lift from mega-rounds and AI funding signaled a stronger quarter in Q2. There are also signs that active venture investors, who backed off from the peak volume of 2021, are picking up the pace a little. However, despite the glimmer of an uptick, the overall funding outlook has not changed, as founders still face a high bar to raise funding at each stage. Global funding was up in Q2, reaching $79 billion, a five-quarter high. This uptick was driven in large part by mega rounds of $100 million and above -- a demonstration of confidence in growth-oriented late-stage companies -- alongside a competitive AI investment runup. While a growing chorus of investors raised concerns about AI-generated revenue compared to massive capital expenditures, AI funding grew this past quarter. Funding to the AI sector doubled to $24 billion, the highest amount seen in the past 18 months, led by billion-dollar fundings in xAI, CoreWeave, Wayve, Scale AI and Xaira Therapeutics. Some of the most high-profile investors picked up the pace year over year for leading post seed rounds. Khosla Ventures, Accel and Andreessen Horowitz led a higher count of post seed rounds. Growth and private equity investors are noticeably absent and counts are way down from 2022. U.S. and Canadian startups had the highest quarter for funding since Q1 of last year. Funding reached $45.3 billion, up more than a third year over year, based on an analysis of Crunchbase data. AI funding this past quarter was up, in line with global trends, more than doubling quarter over quarter and year over year to $16.8 billion. Funding to Asia saw the worst quarter since 2015. Across the region, startups raised $14.6 billion, a 32% decline from a year ago. The percentage of funding to AI-related startups was lower than that in other regions, reaching $2.5 billion -- less than 20% of overall funding this past quarter -- and far lower than the $16.8 billion raised by North American startups. Europe beat out Asia for quarterly funding for the first time in a decade based on an analysis of Crunchbase data. Funding to European startups reached $16 billion, with a bump in late-stage funding alongside large rounds to companies in the AI sector. Funding to South and Central American startups is well below the peak quarter of Q2 2021. Funding reached $791 million across South and Central America, with Brazil- and Mexico-based startups garnering the greatest share of funding, and fintech the leading sector in the region. The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of July 7, 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.)