Venture Investment in Q3 2024: A Mixed Bag Amidst AI Dominance
Despite the undeniable momentum in the artificial intelligence (AI) sector, venture capital investment in the third quarter of 2024 has continued its downward trajectory, marking over two years of decline. This trend is evident across major startup ecosystems worldwide, including North America, Europe, and Asia, where funding has dipped significantly. The only region bucking this trend is Latin America, which saw a slight increase in investment, albeit from a low base compared to its peak in 2021.
Global VC Funding: A Decline in Large Rounds
According to Crunchbase data, global venture funding totaled $66.5 billion in Q3 2024, reflecting a 16% decrease from the previous quarter and a 15% drop year-over-year. This decline is primarily attributed to a reduction in large, late-stage funding rounds. Late-stage investment reached $34.7 billion, remaining flat compared to Q2 but down nearly 25% year-over-year, indicating a significant drop in deals exceeding $500 million.
This quarter marks the second time in recent history that global venture investment has fallen below the $70 billion threshold, a stark contrast to the robust funding environment seen before the current downturn. The last time the figures were this low was in Q4 2023, with the previous instance dating back to 2017.
However, there is a glimmer of hope for younger startups. Seed funding has remained stable, and early-stage funding has shown a slight uptick of around 10% this year. In contrast, late-stage funding is on track for a 20% decline compared to last year.
AI: The Bright Spot in Venture Capital
In a landscape marked by declining investment, AI has emerged as a dominant force. In Q3 2024, AI-related startups secured nearly $19 billion, accounting for 28% of all venture funding. This figure, while lower than the $23.4 billion and 30% share in Q2, still underscores the sector’s resilience and growth potential, especially following the mainstream launch of ChatGPT in late 2022.
AI funding outpaced other sectors, including healthcare and biotech ($15 billion), hardware ($13 billion), and financial services and fintech ($8 billion). Notable large rounds included Alphabet’s $5 billion investment in Waymo, a $1 billion round for Safe Superintelligence, and $640 million for Groq, an AI semiconductor and software startup. However, it’s worth noting that while the total dollars invested in AI remain high, the number of deals has decreased, indicating that larger, more established AI companies are currently attracting the majority of investment.
North America: A Mixed Picture
North America, traditionally a bellwether for global startup investment, experienced a complex quarter. Startups in the region attracted $40.5 billion in Q3, a 10% decline from the previous quarter but a 14% increase year-over-year. Interestingly, late-stage investment surged, with $23.8 billion raised—up 28% quarter-over-quarter and 19% year-over-year. However, this figure was bolstered by Alphabet’s substantial investment in Waymo.
Conversely, early-stage funding in North America fell sharply, down 39% quarter-over-quarter, although it still marked a 16% increase year-over-year. North America remains the leading region for AI funding, with nearly $15 billion invested, representing over 78% of the global total.
Asia: A Ten-Year Low
Asia has been particularly hard hit by the venture funding downturn, with investment plummeting to $13.2 billion in Q3—the lowest total since Q1 2015. This represents a 13% decline from Q2 and a staggering 44% drop year-over-year. The decline in late-stage deal-making was particularly severe, totaling just $5.8 billion, down 30% quarter-over-quarter and a massive 62% year-over-year.
Even the AI sector in Asia struggled, with investment down 20% quarter-over-quarter and flat compared to the previous year. Seed and early-stage funding also saw declines, with China experiencing a dramatic 61% year-over-year drop, raising only $6 billion last quarter.
Europe: A Multiyear Low
Europe’s startup investment landscape also faced challenges, with funding hitting a multiyear low of just $10 billion in Q3 2024. This figure represents a 39% year-over-year decline and the lowest quarterly total for European VC funding in four years. Late-stage funding was particularly affected, dropping over 50% year-over-year, while seed and early-stage investments also saw declines.
The U.K., as Europe’s largest startup market, experienced a dramatic 43% year-over-year decline, raising only $3.2 billion. Interestingly, Germany was the only major European country to see funding gains, with investments rising by more than a third to $2.4 billion.
Latin America: A Modest Recovery
In contrast to the broader trends, Latin America was the only region to show gains in venture investment, with startups raising $884 million in Q3—a 14% increase both quarter-over-quarter and year-over-year. However, this amount is still a fraction of the funding levels seen during the highs of 2021.
Fintech continues to dominate the Latin American startup scene, with significant rounds for companies like Stori ($107 million), OCN ($86 million), and Finkargo ($75 million).
Cybersecurity: A Dramatic Decline
Cybersecurity, often viewed as a resilient sector, saw a dramatic 51% drop in venture funding in Q3, totaling just $2.1 billion. This decline was not only in dollar amounts but also in deal flow, with only 116 funding deals completed—the lowest since Q4 2013. Factors contributing to this downturn include seasonal trends, a lack of blockbuster deals, and increased competition for investor attention, particularly from the AI sector.
The Landscape Ahead
As we move forward, the venture capital landscape remains complex and multifaceted. While AI continues to attract significant investment, the broader decline in funding across various sectors raises questions about the future of startup ecosystems worldwide. The contrasting trends in different regions and sectors highlight the challenges and opportunities that lie ahead for entrepreneurs and investors alike.