Global Funding And M&A Picked Up In Q2, While AI Funding Mushroomed

Global startup funding picked up in the second quarter, reaching $79 billion — rising 16% quarter over quarter and 12% from the $71 billion invested in Q2 2023. Mega-rounds — fundings $100 million and above — accounted for much of the increase this past quarter.

Funding to companies in AI more than doubled quarter over quarter to $24 billion — representing 30% of all dollars invested, the largest quarter for AI funding in recent years. And there are signs that larger M&A deals increased in Q2, providing much-needed liquidity to venture capital markets.

Crunchbase data shows we are eight to nine quarters into the current funding decline. While this past quarter was amongst the highest for funding since Q1 2023, it is not necessarily a signal of a venture market comeback. Since 2023, funding has fluctuated quarter by quarter based on an increase in large growth rounds to pre-IPO companies and to companies in the AI sector. This past quarter is no exception.

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AI boost

AI was the leading sector for the first time since the launch of OpenAI’s ChatGPT, based on an analysis of Crunchbase data. Q2’s total of $24 billion was the largest amount raised in a quarter in the AI sector in recent years, despite investor concerns about revenue and high valuations.

Five out of six billion-dollar funding rounds went to AI companies. Elon Musk’s xAI raised $6 billion, and AI infrastructure provider CoreWeave raised $1.1 billion. Automated driving company Wayve, data preparation company Scale AI and AI biotech company Xaira Therapeutics each raised billion-dollar rounds. Outside of AI, cybersecurity company Wiz raised a billion-dollar round.

Healthcare and biotech was the second-largest sector, raising $17 billion. Hardware companies — in large part due to AI infrastructure and semiconductor fundings — raised $11 billion. Financial services companies, typically in the top two sectors in the peak market of 2021, raised $9.8 billion.

Half-year update

Despite the uptick in the last quarter, funding for the first half of this year did not increase. Global funding reached $147 billion in H1, marking a 5% decline year over year, down from the $154 billion invested in H1 2023. And funding was flat compared to the second half of 2023.

Late-stage funding up

Late-stage funding reached $36 billion, up from $33 billion in the second quarter of 2023. Large fundings went to AI foundation model and AI infrastructure companies, autonomous driving, electric vehicles, cybersecurity, drug development and quantum computing companies.

Early-stage up

Early-stage funding was up in Q2, in large part due to the funding to xAI. Outside of the xAI financing, funding was in line quarter over quarter and year over year. Large early-stage rounds also went to biotech, lending, AI and renewable energy companies.

Seed stable

Seed funding was the most robust through the downturn. It has remained stable over the last five quarters, with around $8 billion invested at seed per quarter. Seed has come down by around a third from the peak quarters, dropping far less in this slower funding environment than early and late-stage funding amounts. Through the downturn, based on an analysis of Crunchbase data, companies are staying at the seed stage for longer, while the bar to raise Series A funding has gone up.

Notable M&A

Notable large deals on the software M&A front this past quarter include security company CyberArk’s bid for identity management company Venafi for $1.5 billion. Intelligence platform AlphaSense has plans to acquire competitor Tegus for $930 million. And Run:AI, a company that improves GPU performance, is to be acquired by Nvidia for $700 million.

Uncertain markets

Despite the pickup in venture in Q2 2024 and increased funding to AI, the overall market outlook has not shifted. Concerns about revenue growth, a challenging environment for startups raising funding, a higher bar at each stage and a slower exit environment continue to impact venture capital allocation.

In the meantime, signs of a more active M&A market would address some of the uncertainty about venture returns.

Methodology

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.

Glossary of funding terms

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.)

Illustration: Dom Guzman