Despite strong attraction from the AI sector, venture capital investment in the third quarter of 2024 has not been able to overcome the crisis that has now lasted more than two years.
This is what we take away from our third quarter venture capital funding figures. Across all major global regions for startups – North America, Europe and Asia – investment in startups fell in the third quarter, Basic Crunch the data shows. The only region we track that has seen an uptick is Latin America, but even there it’s hard to ignore how far VC funding has fallen since its 2021 highs.
At the same time, AI is clearly ascendant. AI-related startups secured $19 billion – or 28% of all venture capital dollars – last quarter. And that doesn’t even include OpenAIThe massive $6.6 billion funding round – one of the largest investments ever made in a private company – which was officially announced just days after the quarter closed.
Let’s take a closer look.
Global VC funding declines as large rounds decline
Global venture capital funding in the third quarter totaled $66.5 billion, down 16% quarter-over-quarter and 15% year-over-year, with the decline driven by a reduction in large fundraising at a late stage.
Late-stage funding last quarter was $34.7 billion globally, according to Crunchbase data. That figure was flat quarter-over-quarter and down nearly 25% year-over-year as there were fewer deals at or above $500 million compared to the prior year.
It is worth noting that the last quarter was the second in which venture capital investments fell below $70 billion since the start of the current funding crisis. Besides the most recent quarter and the fourth quarter of 2023, you would have to go back to 2017 to find another quarter where global venture capital investment was less than $70 billion.
One positive: investments in young startups are doing better so far this year.
Seed funding in the first three quarters of the year tends to be stagnant (and will likely show an uptick as smaller rounds are added to our dataset after the quarter close), while seed funding startup already has a slight upward trend – around 10.% – our data shows it.
Meanwhile, late-stage funding through the third quarter is on track to decline by about 20% compared to last year.
AI becomes dominant
For the second quarter in a row, AI was the top sector in terms of risk dollars invested. And funding for AI companies has increased this year not only in terms of absolute dollars invested, but also in proportion.
Funding for artificial intelligence startups totaled nearly $19 billion, or 28% of all venture funding, in the third quarter, according to data from Crunchbase. While this is lower than the $23.4 billion and 30% the industry pulled in in the second quarter, it’s worth noting that the second quarter was the largest since the consumer launch of ChatGPT end of 2022.
Last quarter, AI outpaced healthcare and biotech ($15 billion invested in Q3), hardware ($13 billion), and financial services and fintech ($8 billion ), according to Crunchbase data.
Large funding rounds from AI-related companies included in Q3 Alphabet$5 billion investment in autonomous vehicle technology developer Waymobillion-dollar fundraising for an AI research laboratory Safe superintelligence$640 million for semiconductor and AI software startup Groqand 500 million dollars for JoinLLM developer for businesses.
These large funding rounds also underpin another trend we spotted in our third-quarter numbers: while total dollars invested remain high, deal flow to AI companies has declined over the past two quarters and fell below 1,000 rounds in the third quarter for the first time since late 2022.
This trend seems to suggest that it is the largest, most proven AI startups that are currently attracting outsized venture capital investment, rather than seed and Series A startups.
North America declines despite AI dominance
Normally, what happens in the North American startup market sets the tone for the rest of the world, but that wasn’t really the case last quarter.
North American startups attracted $40.5 billion in investment in the third quarter, down 10% quarter-over-quarter but up 14% year-over-year.
And, unlike globally, it was late-stage investments that saw the biggest gains in the North American startup sector, with $23.8 billion invested there, an increase of 28 % over a quarter and 19% over a year. (Although $5 billion is owed to a single cycle, Alphabetinvestment in its autonomous driving spin-off Waymo.)
Meanwhile, startup funding on the continent fell 39% quarter-on-quarter, but increased 16% year-on-year. The number of rounds has also decreased slightly.
It’s no surprise that North America is by far the leading region in AI funding, with nearly $15 billion invested in the space, or more than 78% of the global total.
Asia hits 10-year low in startup funding
The slowdown in venture capital funding has hit Asia particularly hard.
Startup investments in the region fell to $13.2 billion – the lowest total since reaching $13 billion in the first quarter of 2015 – according to data from Crunchbase. This figure represents a 13% drop from the second quarter and a whopping 44% year-over-year decline.
Late-stage dealmaking was by far the biggest cause of Asia’s VC decline last quarter, totaling just $5.8 billion, down 30% quarter-over-quarter and 62%. over a year.
Even AI couldn’t support these numbers, with investment in startups across the region and sector down 20% quarter-over-quarter and flat compared to the previous year.
Funding for Asia-based startups at the seed and angel stages fell 9% from the second quarter, but increased about 6% year-over-year. Seed investments in Asia-based startups reached $5.6 billion last quarter, up 12% from the second quarter but down 17% year-over-year.
China is also experiencing much of the decline in investment. Startups nationwide raised just $6 billion last quarter, according to Crunchbase data, down 61% year over year.
Israeli startups also struggled, raising just $700 million, down 23% from the second quarter and 46% from the third quarter of 2023.
Investments in European startups fall
In Europe, investment in startups also hit a multi-year low last quarter, with companies in the region raising just $10 billion in the third quarter. This represents a decline of 39% year-on-year and is the lowest quarter for European venture capital funding in four years.
Late-stage European funding was behind the third-quarter decline, falling more than 50% year-on-year. Seed investments were down 18% year-over-year and seed funding was down 12%.
The UK, Europe’s largest startup market, saw a dramatic 43% year-over-year decline in venture capital investment, to $3.2 billion.
In fact, the only one of Europe’s three largest startup countries to see funding gains last quarter was Germany, which saw investment in its startups rise by more than a third to 2.4 billion dollars (which also placed the country ahead of France in terms of amount invested, by 1 billion dollars).
Latin America financing stabilizes
Latin America was the only one of the regions we track for venture capital investments to post gains last quarter, although they were modest.
Funding for Latin America-based startups totaled $884 million last quarter across all stages, according to Crunchbase data. This represents a gain of approximately 14% quarter-over-quarter and year-over-year.
(Nevertheless, the tally is only a fraction of what Latin American startups made during the 2021 summits, when the region was the fastest-growing place for startup investment in the world ).
Fintech remains the dominant sector for Latin American startups, as evidenced by many of last quarter’s largest funding rounds. They included $107 million for History86 million dollars for OCN and $75 million for Finkargo.
Cyberfinancing drops significantly
Cybersecurity is an industry often considered resilient to downturns. That didn’t prove to be the case in the third quarter, when venture capital funding for these startups fell 51% quarter-over-quarter to just $2.1 billion.
While the dollar’s decline has been dramatic, the decline in deal flow is perhaps more surprising, with just 116 cybersecurity financing deals closed in the third quarter, the lowest figure since the fourth quarter of 2013.
Many factors appear to be playing into the decline in cyber last quarter.
One is the usual seasonality of the third quarter, with the quarter largely down during the summer funding lull. There were also no blockbuster deals for cyber startups last quarter, with the largest reaching $456 million for a secure communications company. Kite work.
And finally, the industry could face the same dilemma that all startups now face: how to compete for investors’ limited attention if you’re not an AI startup.
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Illustration: Dom Guzman
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