Eye On AI: Q2 Funding Shows Investors Are Willing To Open Their Checkbooks

This column is a look back at the week that was in AI. Read the previous one here.

Last quarter was a great quarter if you were a founder of an AI-related startup looking for funding — maybe.

Such startups saw more money in 2Q than they ever have before, raising a whopping $24.2 billion in 1,001 deals, per Crunchbase data. This is more than twice as much as raised by similar startups in the first quarter and also about twice what was raised in the same quarter last year.

Thanks to the huge windfall seen in Q2, the first half of this year saw $35.6 billion go to AI startups — a 24% increase from the $28.7 billion in H1 last year.

While the pure size of the dollar figure is eye-catching — and the largest ever amount raised by AI startups in a single quarter — what may be most interesting is the actual deal count.

The barely more than 1,000 deals announced last quarter was the lowest total for rounds going to AI-related startups in years.

However, what the quarter lacked in quantity, it more than made up for in megadeals.

Of course, some of the biggest include Elon Musk’s generative AI startup, xAI, officially announcing its long-awaited $6 billion fundraise, CoreWeave locking up $1.1 billion at a reported $19 billion valuation and London-based self-driving car startup Wayve’s $1.05 billion raise in a SoftBank-led round.

In fact, last quarter saw 34 nine-figure rounds raised by AI startups — more than a third more compared to the only 22 in Q1 and even besting the 27 $100 million-or-more rounds seen in Q2 last year.

Big deal(s)

On top of that, there were five rounds of $1 billion or more in Q2 — Scale AI and AI biotech company Xaira Therapeutics in addition to those above. The first quarter saw only one such round — Chinese AI startup Moonshot AI — while Q2 last year similarly saw only Inflection AI raise $1 billion or more.

Those massive raises boosted the dollar figure to unseen heights, even while deal flow actually decreased 15% from the first quarter and a more significant 26% from just a year ago.

AI investing has been tough to get a read on. Coming into this year, many VCs predicted a slight pullback as valuations seemed frothy and many AI companies’ financial metrics didn’t jibe with what investors were now looking for — namely revenue and positive cash flow.

However, that could be the reason we are witnessing more money going to fewer AI-related startups. Investors may be betting big — really big in many cases — on the ones they believe in while letting those they are less sure about wither away at earlier stages of funding.

We actually talked about just that not long ago, as early-stage funding seemed on the decline. Now, with the quarter over, those numbers are coming more into focus as we can see how the mega-rounds boosted up a massive total.

It may still seem to be a good time to be looking for funding if you’re the head of an AI startup, but more and more investors look like they are placing fewer — but bigger — bets.