North American Startup Funding Jumped Higher In Q2

North American startup funding perked up in the second quarter, bolstered by early-stage investment around artificial intelligence.

Overall, investors put $45.3 billion into seed- through growth-stage financings for U.S. and Canadian startups in the second quarter of 2024. That’s a 30% rise from the prior quarter and a 35% jump from the same period last year.

For perspective, we charted out total funding, color-coded by stage, for the past 14 quarters below:

Looking at the chart above, the big picture that emerges is one of a venture ecosystem that – while still far below the 2021 peak – is rising steadily from its low point late last year.

But it’s an uneven recovery, as some sectors sputter and others soar. Artificial intelligence remains the runaway favorite investment theme, as AI-focused startups pulled in $16.8 billion in Q2. A single company, Elon Musk’s xAI, accounted for over a quarter of all early-stage funding.

Meanwhile, investment activity remains down or muted for a host of other areas, including enterprise software, consumer products, and fintech. Additionally, the number of reported deals actually fell in Q2, hitting the lowest point in years, as illustrated below:

To get a better sense of how the quarter played out, below we look at investment at each stage, as well as exits, including both acquisitions and public offerings.

Late-stage investment

We’ll start with late-stage investment, which was up slightly in the second quarter.

A total of $19.4 billion went into late-stage and technology growth investments in Q2 – up 11% quarter over quarter and 23% year over year. At the same time, deal counts declined slightly, as charted below:

Three companies scored late-stage rounds of $1 billion or more. The largest round went to CoreWeave, an AI cloud infrastructure startup that raised $1.1 billion in a May Series C led by Coatue.

Two others raised billion-dollar rounds: Scale AI, a data labeling and evaluation startup, and Wiz, a cloud cybersecurity provider.

While funding rose, thanks in part to continued enthusiasm for all things AI-related, the number of completed deals actually declined. There were an estimated 201 reported late-state and technology growth round counts in Q2, which is the lowest total in years.

Early stage

Early stage posted the sharpest gains in Q2, with $22 billion invested. That is an increase of 60% from the prior quarter and 56% from year-ago levels.

Round counts, meanwhile, were relatively flat. For perspective, we charted out deal counts and investment totals for the past five quarters below:

Most of the early-stage investment increase in Q2 could be attributed to a single deal: xAI’s $6 billion Series B in May.

Still, there were some other jumbo-sized rounds in the mix. Xaira Therapeutics, a startup harnessing AI for drug discovery and development, launched in April with $1 billion in initial funding. EnerVenue, which makes metal-hydrogen batteries, secured $308 million in Series B financing. And Uniquity Bio, focused on medicines in immunology and inflammation, landed $300 million in May.

Seed stage

Seed has been the most stable stage for overall venture investment in recent quarters, and Q2 was no exception.

Investors put $3.9 billion into reported seed, pre-seed and angel deals in the second quarter, up 8% from the prior quarter and 5% from the same period last year. For perspective, we charted the past five quarters below:

Although round counts declined slightly in Q2, we expect the number to rise a bit as deals at this stage are sometimes added to the database weeks or months after they close.

As usual, there were a few large seed rounds that helped boost the funding totals. By far the largest was a $150 million seed financing for The Bot Company, a household robot startup. Evolutionary Scale, a developer of AI models for therapeutics, picked up $142 million, while Emergence, focused on AI-enabled “agents” for enterprise customers, landed $97.2 million.

Exits

While Q2 didn’t produce a lot of high-profile exits for venture-backed companies, there were a few large acquisitions. IPO activity, meanwhile, remained muted, although we saw some good-sized market debuts for biotech and technology companies.

M&A

On the software M&A front, the largest deal of the quarter was software investor Hg’s $3 billion purchase of auditing platform provider AuditBoard.

For biotech, the quarter’s biggest acquisition was Merck’s acquisition of EyeBio, a developer of treatments for eye diseases, for $1.3 billion upfront and up to $1.7 billion in milestone-based payments.

Other sizable biotech acquisitions during the quarter included Biogen’s purchase of HI-Bio, Genmab’s acquisition of ProfoundBio, and Novartis’ acquisition of Mariana Oncology.

Larger software deals included CyberArk Software’s acquisition of Venafi and AlphaSense’s purchase of Tegus.

IPOs

Although it wasn’t the most rollicking quarter for IPOs, we did see a few venture-backed companies make it to market.

One standout was data security firm Rubrik, which went public on NYSE in April, raising $752 million at an initial valuation of $5.6 billion. Another was Tempus, a Google-backed startup applying AI to precision medicine, which raised $410 million in its June debut on Nasdaq.

Additionally, Webtoon Entertainment made a solid debut in June, with an initial valuation around $2.7 billion. The online comics publisher, which has its roots in South Korea, is headquartered in Los Angeles.

Big picture

Overall, the Q2 startup investment and exit tallies offer some fodder for both optimists and pessimists.

On the optimists’ side, we can point to rising investment totals, continued strength in AI startup funding, and a few good-sized exits. Pessimists, meanwhile, might highlight weaker funding for areas like enterprise software and consumer-focused startups, as well as a large backlog of mature, heavily-funded private companies that have yet to produce an exit.

Because VCs and entrepreneurs tend to be an optimistic bunch, my guess is going forward we’ll hear more from the glass-half-full camp around rising investment and the incredible potential of AI. Nonetheless, it’s clear there are still many startups and industries that have not partaken in the bullish run.

Illustration: Dom Guzman