Venture dealmaking in the US hobbled along at a slightly better pace than a year ago in dollar terms, but the cash went to a relatively small number of companies. This underscores the increasingly selective spending in the sector. There were an estimated 3,777 U.S. deals amounting to $37.9 billion in the third quarter.
This reflects about an 8% uptick in the value of transactions compared to the year-earlier period, according to data released Thursday by Pitchbook. Artificial intelligence firms were significant beneficiaries. They received more than one-third of the funding in the third quarter.
Highlighting this trend, one startup announced on Wednesday that it raised $6.6 billion at a valuation of $157 billion. The selective nature of this investment landscape points to a cautious approach by investors. They are favoring established ventures over broad speculative funding.
Global venture funding in the third quarter of 2024 reached $66.5 billion. This is a decline of 16% quarter over quarter and 15% year over year from the $78 billion invested in Q3 2023. It marks the ninth or tenth consecutive quarter of the ongoing startup funding decline.
Q3 was the second quarter to fall below the $70 billion mark since the start of this downturn. The steepest decline year over year was observed in late-stage funding, particularly in the largest rounds of $500 million and above. The concentration of venture dollars going to large rounds — those $100 million or above — was slightly lower in Q3, at about 46%.
This is compared to 50% in the previous quarter and the third quarter of last year.
Selective investments in venture funding
AI was the top sector by dollars invested in the third quarter.
Funding for artificial intelligence startups reached close to $19 billion, or 28% of all venture dollars. This represents significant growth both in absolute dollars and proportion for AI in 2024. Q3 was the second-largest quarter for AI funding since the mainstream launch of AI models in November 2022.
AI surpassed the healthcare and biotech sectors, the second and third-largest funded sectors. They raised more than $15 billion and $13 billion respectively. Financial services companies raised close to $8 billion.
Late-stage funding reached $34.7 billion, flat quarter over quarter but down from $46 billion in Q3 2023. The most significant change was a decrease in the amount invested in deals over $500 million. Last quarter, large fundings were prominent in sectors like autonomous driving, defense tech, professional services, semiconductor, and AI model companies.
Early-stage funding totaled $24.7 billion, down quarter over quarter due to a notable $6 billion Series B funding to an OpenAI competitor in the second quarter. Year over year, early-stage funding remained flat, with large early-stage rounds dominated by AI and biotech. Seed funding reached $7 billion in Q3, falling both quarter over quarter and year over year.
The majority of seed funding — around $6.8 billion — was invested in fundings of $1 million and above, across more than 1,500 companies globally. Year-to-date, venture funding is down around 7%, with seed funding appearing flat but likely to show an uptick as more rounds are reported. Early-stage funding is trending up by around 10%, while late-stage funding is down by around 20%.
- Forbes.”VC Math Explained To Founders: The High-Stakes Game Of Startup Funding”.
- Bloomberg.”Venture Dealmaking Reflects Selective Tastes of Investors”.
- CrunchBase.”Global Funding Slowed In Q3, Even As AI Continued To Lead”.