These 10 Charts Show Startup Funding Downturn Continues Despite AI’s Ascent

Regardless of a robust pull from the AI sector, enterprise funding within the third quarter of 2024 wasn’t in a position to overcome its now greater than two-year-long hunch.

That’s the broad takeaway from our third-quarter enterprise funding numbers. In each main startup area on the planet — North America, Europe and Asia — startup funding fell in Q3, Crunchbase information reveals. The one area we monitor that noticed a modest uptick was Latin America, however even there, it’s onerous to disregard simply how far enterprise funding has fallen since its 2021 highs.

On the identical time, AI is clearly ascendant. Synthetic intelligence-related startups secured $19 billion — or 28% of all enterprise {dollars} — final quarter. And that’s not even together with OpenAI’s huge $6.6 billion spherical — one of many largest investments in a personal firm ever — which was officially announced only a few days after the quarter’s shut.

Let’s take a better look.

International VC funding falls as giant rounds decline

Global venture funding in Q3 totaled $66.5 billion, down 16% quarter over quarter and 15% 12 months over 12 months, with the decline led by a lower in giant, late-stage rounds.

Late-stage funding final quarter was $34.7 billion globally, Crunchbase information reveals. That was flat quarter over quarter and down nearly 25% YoY as there have been fewer offers at or above $500 million in comparison with a 12 months earlier.

Notably, final quarter marked the second wherein enterprise funding fell beneath the $70 billion mark because the begin of the present funding downturn. Other than the latest quarter and Q4 2023, you’d must go all the best way again to 2017 to seek out one other quarter the place world VC funding was beneath $70 billion.

One brilliant spot: funding in youthful startups is faring higher thus far this 12 months.

Seed funding by way of the primary three quarters of the 12 months is trending flat (and can probably present a slight uptick as smaller rounds are added to our dataset after the shut of the quarter), whereas early-stage funding is already trending up barely — round 10% — our information reveals.

Late-stage funding by way of Q3, in the meantime, is on tempo to say no round 20% in comparison with final 12 months.

AI turns into dominant

For the second quarter in a row, AI was the highest sector by enterprise {dollars} invested. And funding to AI firms has grown this 12 months not simply when it comes to absolute {dollars} invested, but additionally proportion.

Funding to synthetic intelligence startups was almost $19 billion, or 28% of all enterprise funding, in Q3, Crunchbase information reveals. Although that’s beneath the $23.4 billion and 30% the sector drew in Q2, it’s price noting that the second quarter was the biggest because the mainstream launch of ChatGPT in late 2022.

Final quarter, AI outstripped healthcare and biotech ($15 billion invested in Q3), {hardware} ($13 billion), and monetary providers and fintech ($8 billion), Crunchbase information reveals.

Giant rounds to AI-related firms in Q3 included Alphabet’s $5 billion funding into autonomous automobile tech developer Waymo, a $1 billion round for AI analysis lab Safe Superintelligence, $640 million for AI semiconductor and software program startup Groq, and $500 million for Cohere, developer of LLMs for enterprises.

Those large rounds also underlie another trend we spotted in our Q3 numbers: Whereas complete {dollars} invested stay excessive, deal circulation to AI firms has declined for the previous two quarters and in Q3 dipped beneath 1,000 rounds for the primary time since late 2022.

That development appears to recommend that it’s the bigger, extra confirmed AI startups which can be drawing outsized enterprise funding proper now, moderately than seed and Sequence A startups.

North America declines regardless of AI dominance

Usually, what occurs in North America’s startup market units the tone for the remainder of the globe, however that wasn’t actually the case final quarter.

North American startups drew $40.5 billion in funding in Q3, down 10% quarter over quarter however up 14% 12 months over 12 months.

And, not like globally, it was late-stage funding that posted the strongest features within the North American startup sector, with $23.8 billion invested there — up 28% QoQ and 19% YoY. (Though, $5 billion of that was due to a single spherical, Alphabet’s funding in its autonomous driving spinoff Waymo.)

In the meantime, early-stage funding on the continent fell 39% quarter over quarter however was up 16% 12 months over 12 months. Spherical counts additionally dipped barely.

Not surprisingly, North America is by far the main area for AI funding, with almost $15 billion invested within the area — greater than 78% of the worldwide complete.

Asia hits 10-year startup funding low

The enterprise funding downturn has hit Asia notably onerous.

Startup investment in the region fell to $13.2 billion — its smallest complete because it hit $13 billion in Q1 2015 — based on Crunchbase information. The quantity represents a 13% decline from Q2 and a whopping 44% year-over-year drop.

Late-stage dealmaking was by far the most important perpetrator in Asia’s VC decline final quarter, totaling simply $5.8 billion — down 30% QoQ and an enormous 62% YoY.

Not even AI may buoy these numbers, with funding in startups within the area and sector down 20% quarter over quarter and flat in comparison with a 12 months earlier.

Funding for Asia-based startups on the seed and angel levels fell 9% from Q2, however was up about 6% 12 months over 12 months. Early-stage funding in Asia-based startups reached $5.6 billion final quarter — up 12% from Q2, however down 17% 12 months over 12 months.

China additionally bears a lot of the brunt of the funding falloff. Startups within the nation raised simply $6 billion final quarter, Crunchbase information reveals, down 61% 12 months over 12 months.

Israeli startups additionally struggled, elevating simply $700 million — down 23% in comparison with Q2 and 46% versus Q3 2023.

Europe startup funding sinks

Over in Europe, startup investment also hit a multiyear low last quarter, with firms within the area elevating simply $10 billion in Q3. That’s down 39% 12 months over 12 months and marks the bottom quarter for European VC funding in 4 years.

European late-stage funding led the Q3 decline, falling greater than 50% 12 months over 12 months. Seed funding declined 18% 12 months over 12 months and early-stage funding fell 12%.

The U.Okay., the biggest startup market in Europe, noticed a dramatic 43% year-over-year decline in enterprise funding, to $3.2 billion.

Actually, the one one of many three largest startup nations in Europe to submit funding features final quarter was Germany, which noticed funding in its startups rise by greater than a 3rd to $2.4 billion (which additionally pushed the nation forward of France when it comes to quantity invested, by $1 billion).

LatAm funding stabilizes

Latin America was the one one of many areas we monitor for enterprise funding to point out features final quarter, although they have been modest.

Funding to Latin America-based startups totaled $884 million last quarter across all stages, based on Crunchbase information. That’s a acquire of about 14% each quarter over quarter and 12 months over 12 months.

(Nonetheless, the tally is a sliver of what LatAm startups were pulling in during the highs of 2021, when the area was the fastest-growing place for startup funding globally).

Fintech stays the dominant sector for Latin American startups, as evidenced by lots of the largest rounds final quarter. They included $107 million for Stori, $86 million for OCN and $75 million for Finkargo.

Cyber funding falls dramatically

Cybersecurity is a sector typically considered resilient to downturns. That proved to not be the case in Q3, when enterprise funding for such startups globally tumbled 51% quarter over quarter to just $2.1 billion. 

Whereas the greenback decline was dramatic, maybe extra stunning is the decline in deal circulation, with simply 116 cybersecurity funding offers performed in Q3 — the bottom determine since This autumn 2013.

Many components appear to play into final quarter’s decline for cyber.

One is the standard Q3 seasonality, with the quarter largely falling in the summertime funding lull. There have been additionally no huge blockbuster offers for cyber startups final quarter, with the biggest topping out at $456 million for safe communications firm Kiteworks.

And at last, the sector could also be in the identical dilemma that each startup now faces: Learn how to compete for restricted investor consideration should you’re not an AI startup.

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Illustration: Dom Guzman