Anyone who dismissed artificial intelligence (AI) as just a passing trend is being proven wrong by the latest Venture Capital (VC) investment trends from CB Insights.
According to newly released Q2 2024 data, AI startups accounted for 28 percent of all global VC funding during this period—a record for the sector—and helped push total quarterly funding up 8 percent compared to Q1 2024.
Altogether, AI startups secured $18.3 billion out of the more than $65.7 billion in VC funding recorded in Q2.
There’s a major caveat, though: 47 percent of all VC funding in Q2 came from megarounds (that is, deals of $100 million or more), while the total number of deals dropped for the ninth quarter in a row—a 7 percent decrease from Q1, with only 6,230 deals tracked by CB Insights last quarter.
The bottom line? The average deal size so far in 2024 is trending more than 17 percent higher than in 2023, at $14.4 million—but far fewer companies are benefiting from this influx of private equity cash.
For example, Elon Musk’s xAI alone raised about $6 billion in Q2 2024, showing that investors are especially interested in companies connected to established, proven tech ecosystems—like Musk’s network of businesses that directly leverage xAI’s new technology.
There are also signs of caution in traditionally strong private equity markets, with Asia, the United States, and Europe all seeing deal volume drop from Q1 to Q2 2024—even as Canada, Latin America, Africa, and Oceania saw slight increases in total deals.
The PitchBook-NVCA Venture Monitor report showed a similar slowdown in VC funding during Q2, noting that while total deal value hit an eight-quarter high, this was driven by just a handful of megadeals (think: xAI, CoreWeave, and other AI standouts).
While PitchBook-NVCA analysts remain optimistic about how the rest of the year will play out for startups looking to secure VC capital, there are still many factors that could keep investors cautious—both globally and locally.
With elections happening around the world and ongoing geopolitical tensions, many investors are holding back from funding early-stage or emerging companies. Still, opportunities for leaders in the AI space to keep attracting investment don’t seem to be fading anytime soon.
Extending your operational runway in any market
While private equity is a reality for many startups, venture capital is just one part of a well-rounded capital strategy for growth-focused companies.
Even during times of economic uncertainty—or outright downturns—companies can look to their product and innovation teams to unlock new opportunities for non-dilutive funding, which can be essential for keeping operations running.
In both the United States and Canada, for example, their federal governments offer R&D tax credits that help innovative companies recover a portion of the investments they’re already making to drive innovation and develop new products. Beyond opening the door to new offerings, truly innovative R&D projects can be key to keeping teams productive—and attracting government support—when other sources of capital have dried up.
Just look at Darryl Hatton of ConnectionPoint: non-dilutive funding not only helped his team stay afloat during the height of the pandemic, but also led to even more powerful solutions that have driven major success in today’s market.
But tapping into the wealth of innovation funding available in the North American tech ecosystem still depends on having partners who can help you navigate the challenges that come with government-backed financing.
That’s because, as generous as programs like SR&ED tax credits are, it takes a mix of technical and tax expertise to build a compelling case and maximize your claim.
Want to learn how Boast can help you extend your R&D runway and access powerful non-dilutive capital? Talk to one of our experts today.
2024 VC Funding Trends: Frequently Asked Questions
- What are the latest trends in Venture Capital funding for AI startups in 2024?
AI startups captured a record 28% of global VC funding in Q2 2024, totaling $18.3 billion out of $65.7 billion. This marks a significant jump, with AI funding driving an 8% increase in quarterly funding compared to Q1 2024.
- How has overall VC deal volume changed in 2024?
Even though funding for AI has increased, the total number of VC deals has dropped for the ninth straight quarter. Q2 2024 saw a 7% decrease from Q1, with only 6,230 deals tracked. However, the average deal size is up 17% compared to 2023, reaching $14.4 million.
- What role are megarounds playing in the current VC landscape?
Megarounds—deals of $100 million or more—made up 47% of all VC funding in Q2 2024. This concentration of capital in large deals means fewer companies are benefiting from VC investments. For example, Elon Musk’s xAI alone raised about $6 billion in Q2.
- How are different global regions performing in terms of VC investment?
Asia, the United States, and Europe all saw deal volumes decline from Q1 to Q2 2024. In contrast, Canada, Latin America, Africa, and Oceania experienced slight increases in total deals. This shows that investor confidence varies across different markets.
- What alternative funding strategies can startups consider in this environment?
Startups can look into non-dilutive funding options like R&D tax credits offered by governments in the US and Canada. These credits help innovative companies recover part of their R&D investments, potentially extending their operational runway during uncertain times. Working with experts who understand both the technical and tax sides can help you get the most out of these opportunities.
