Despite a strong pull from the AI sector, venture investment in the third quarter of 2024 wasn’t able to overcome its now more than two-year-long slump.
That’s the broad takeaway from our third-quarter venture funding numbers. In every major startup region in the world — North America, Europe and Asia — startup investment fell in Q3, Crunchbase data shows. The only region we track that saw a modest uptick was Latin America, but even there, it’s hard to ignore just how far venture funding has fallen since its 2021 highs.
At the same time, AI is clearly ascendant. Artificial intelligence-related startups secured $19 billion — or 28% of all venture dollars — last quarter. And that’s not even including OpenAI’s massive $6.6 billion round — one of the largest investments in a private company ever — which was officially announced just a few days after the quarter’s close.
Let’s take a closer look.
Global VC funding falls as large rounds decline
Global venture funding in Q3 totaled $66.5 billion, down 16% quarter over quarter and 15% year over year, with the decline led by a decrease in large, late-stage rounds.
Late-stage funding last quarter was $34.7 billion globally, Crunchbase data shows. That was flat quarter over quarter and down almost 25% YoY as there were fewer deals at or above $500 million compared to a year earlier.
Notably, last quarter marked the second in which venture investment fell below the $70 billion mark since the start of the current funding downturn. Apart from the most recent quarter and Q4 2023, you’d need to go all the way back to 2017 to find another quarter where global VC investment was below $70 billion.
One bright spot: investment in younger startups is faring better so far this year.
Seed funding through the first three quarters of the year is trending flat (and will likely show a slight uptick as smaller rounds are added to our dataset after the close of the quarter), while early-stage funding is already trending up slightly — around 10% — our data shows.
Late-stage funding through Q3, meanwhile, is on pace to decline around 20% compared to last year.
AI becomes dominant
For the second quarter in a row, AI was the top sector by venture dollars invested. And funding to AI companies has grown this year not just in terms of absolute dollars invested, but also proportion.
Funding to artificial intelligence startups was nearly $19 billion, or 28% of all venture funding, in Q3, Crunchbase data shows. Though that’s below the $23.4 billion and 30% the sector drew in Q2, it’s worth noting that the second quarter was the largest since the mainstream launch of ChatGPT in late 2022.
Last quarter, AI outstripped healthcare and biotech ($15 billion invested in Q3), hardware ($13 billion), and financial services and fintech ($8 billion), Crunchbase data shows.
Large rounds to AI-related companies in Q3 included Alphabet’s $5 billion investment into autonomous vehicle tech developer Waymo, a $1 billion round for AI research lab Safe Superintelligence, $640 million for AI semiconductor and software 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: While total dollars invested remain high, deal flow to AI companies has declined for the past two quarters and in Q3 dipped below 1,000 rounds for the first time since late 2022.
That trend seems to suggest that it’s the larger, more proven AI startups that are drawing outsized venture investment right now, rather than seed and Series A startups.
North America declines despite AI dominance
Normally, what happens in North America’s startup market sets the tone for the rest of the globe, but that wasn’t really the case last quarter.
North American startups drew $40.5 billion in investment in Q3, down 10% quarter over quarter but up 14% year over year.
And, unlike globally, it was late-stage investment that posted the strongest gains in the North American startup sector, with $23.8 billion invested there — up 28% QoQ and 19% YoY. (Although, $5 billion of that was thanks to a single round, Alphabet’s investment in its autonomous driving spinoff Waymo.)
Meanwhile, early-stage funding on the continent fell 39% quarter over quarter but was up 16% year over year. Round counts also dipped slightly.
Not surprisingly, North America is by far the leading region for AI funding, with nearly $15 billion invested in the space — more than 78% of the global total.
Asia hits 10-year startup funding low
The venture funding downturn has hit Asia particularly hard.
Startup investment in the region fell to $13.2 billion — its smallest total since it hit $13 billion in Q1 2015 — according to Crunchbase data. The number represents a 13% decline from Q2 and a whopping 44% year-over-year drop.
Late-stage dealmaking was by far the biggest culprit in Asia’s VC decline last quarter, totaling just $5.8 billion — down 30% QoQ and a massive 62% YoY.
Not even AI could buoy those numbers, with investment in startups in the region and sector down 20% quarter over quarter and flat compared to a year earlier.
Funding for Asia-based startups at the seed and angel stages fell 9% from Q2, but was up about 6% year over year. Early-stage investment in Asia-based startups reached $5.6 billion last quarter — up 12% from Q2, but down 17% year over year.
China also bears much of the brunt of the investment falloff. Startups in the country raised just $6 billion last quarter, Crunchbase data shows, down 61% year over year.
Israeli startups also struggled, raising just $700 million — down 23% compared to Q2 and 46% versus Q3 2023.
Europe startup investment sinks
Over in Europe, startup investment also hit a multiyear low last quarter, with companies in the region raising just $10 billion in Q3. That’s down 39% year over year and marks the lowest quarter for European VC funding in four years.
European late-stage funding led the Q3 decline, falling more than 50% year over year. Seed investment declined 18% year over year and early-stage funding fell 12%.
The U.K., the largest startup market in Europe, saw a dramatic 43% year-over-year decline in venture investment, to $3.2 billion.
In fact, the only one of the three largest startup countries in Europe to post funding gains last quarter was Germany, which saw investment in its startups rise by more than a third to $2.4 billion (which also pushed the nation ahead of France in terms of amount invested, by $1 billion).
LatAm funding stabilizes
Latin America was the only one of the regions we track for venture investment to show gains last quarter, though they were modest.
Funding to Latin America-based startups totaled $884 million last quarter across all stages, according to Crunchbase data. That’s a gain of about 14% both quarter over quarter and year over year.
(Still, the tally is a sliver of what LatAm startups were pulling in during the highs of 2021, when the region was the fastest-growing place for startup investment globally).
Fintech remains the dominant sector for Latin American startups, as evidenced by many of the largest rounds last quarter. They included $107 million for Stori, $86 million for OCN and $75 million for Finkargo.
Cyber funding falls dramatically
Cybersecurity is a sector often thought of as resilient to downturns. That proved not to be the case in Q3, when venture funding for such startups globally tumbled 51% quarter over quarter to just $2.1 billion.
While the dollar decline was dramatic, perhaps more surprising is the decline in deal flow, with just 116 cybersecurity funding deals done in Q3 — the lowest figure since Q4 2013.
Many factors seem to play into last quarter’s decline for cyber.
One is the usual Q3 seasonality, with the quarter largely falling in the summer funding lull. There were also no massive blockbuster deals for cyber startups last quarter, with the largest topping out at $456 million for secure communications company Kiteworks.
And finally, the sector may be in the same dilemma that every startup now faces: How to compete for limited investor attention if you’re not an AI startup.
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Related reading:
- Global Funding Slowed In Q3, Even As AI Continued To Lead
- North American Startup Funding Weakened In Q3 As Largest Deal Took Longer To Close
- Asia Venture Funding Hits 10-Year Low In Q3
- European VC Funding Drops To Lowest Quarter In 4 Years, Despite Uptick For German Startups
- LatAm Startup Funding Sees A Modest Uptick
- Eye On AI: AI’s Torrid Pace Of Funding Continues
- What Funding Slump? Active Venture Investors Picked Up The Pace In Q3
Illustration: Dom Guzman
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