Funding to companies in AI more than doubled quarter over quarter to $24 billion — representing 30% of all dollars invested, the largest quarter for AI funding in recent years. And there are signs that larger M&A deals increased in Q2, providing much-needed liquidity to venture capital markets.

Crunchbase data shows we are eight to nine quarters into the current funding decline. While this past quarter was amongst the highest for funding since Q1 2023, it is not necessarily a signal of a venture market comeback. Since 2023, funding has fluctuated quarter by quarter based on an increase in large growth rounds to pre-IPO companies and to companies in the AI sector. This past quarter is no exception.

Table of Contents

• • AI boost
  • Half-year update
  • Late-stage funding up
  • Early-stage up
  • Seed stable
  • Uncertain markets
  • Methodology
  • Glossary of funding terms

AI boost

AI was the leading sector for the first time since the launch of ’s , based on an analysis of Crunchbase data. Q2’s total of $24 billion was the largest amount raised in a quarter in the AI sector in recent years, despite investor concerns about revenue and high valuations.

Five out of six billion-dollar funding rounds went to AI companies. ’s raised $6 billion, and AI infrastructure provider raised $1.1 billion. Automated driving company , data preparation company and AI biotech company each raised billion-dollar rounds. Outside of AI, cybersecurity company raised a billion-dollar round.

Healthcare and biotech was the second-largest sector, raising $17 billion. Hardware companies — in large part due to AI infrastructure and semiconductor fundings — raised $11 billion. Financial services companies, typically in the top two sectors in the peak market of 2021, raised $9.8 billion.

Half-year update

Despite the uptick in the last quarter, funding for the first half of this year did not increase. Global funding reached $147 billion in H1, marking a 5% decline year over year, down from the $154 billion invested in H1 2023. And funding was flat compared to the second half of 2023.

Late-stage funding up

Late-stage funding reached $36 billion, up from $33 billion in the second quarter of 2023. Large fundings went to AI foundation model and AI infrastructure companies, autonomous driving, electric vehicles, cybersecurity, drug development and quantum computing companies.

Early-stage up

Early-stage funding was up in Q2, in large part due to the funding to xAI. Outside of the xAI financing, funding was in line quarter over quarter and year over year. Large early-stage rounds also went to biotech, lending, AI and renewable energy companies.

Seed stable

Seed funding was the most robust through the downturn. It has remained stable over the last five quarters, with around $8 billion invested at seed per quarter. Seed has come down by around a third from the peak quarters, dropping far less in this slower funding environment than early and late-stage funding amounts. Through the downturn, based on an analysis of Crunchbase data, companies are staying at the seed stage for longer, while the bar to raise Series A funding has gone up.

Notable M&A

Notable large deals on the software M&A front this past quarter include security company ’s bid for identity management company for $1.5 billion. Intelligence platform has plans to acquire competitor for $930 million. And , a company that improves GPU performance, is to be acquired by for $700 million.

Uncertain markets

Despite the pickup in venture in Q2 2024 and increased funding to AI, the overall market outlook has not shifted. Concerns about revenue growth, a challenging environment for startups raising funding, a higher bar at each stage and a slower exit environment continue to impact venture capital allocation.

In the meantime, signs of a more active M&A market would address some of the uncertainty about venture returns.

Methodology

The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of July 7, 2024.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

We have made a change to how we include corporate funding rounds in our reporting as of January 2023. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round.

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

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The outlook for tech IPOs isn’t much livelier for the second half of this year either, with interest rates at their highest in 16 years and lackluster performance from last year’s IPO class further dampening enthusiasm for new public listings.

• See also: The Crunchbase Billion-Dollar Exits Board

However, there is a long list of high-growth companies that missed the 2021 IPO window and are waiting in the wings for the market to turn more favorable. If some of those companies decide to go public, they could help thaw the IPO pipeline.

A large number of companies filed S-1 forms — the regulatory paperwork signaling an intent to go public — in 2021 and 2022, noted of IPO law firm in an email to Crunchbase News. While not all of those companies are ready to go public right now, many have already made it through the ’s review process and are standing by for market stability, said Freese.

IPO headwinds

But the performance of last year’s IPO class and the public markets this year are significant headwinds.

While the spin-off of ’s consumer health division, — valued at $50 billion at the end of its first-day of trading on the earlier this month — is a potential signal of a market thaw, it’s not necessarily a good predictor of how venture-backed tech IPOs will be received on the public markets. That’s because in contrast to loss-leading, high-growth tech companies, Kenvue is a well-established, profitable company that owns household brand names including , , and .

So far in 2023, only two U.S. venture-backed companies —  and , both SPAC mergers — have listed above $1 billion on the public markets, and both are down more than 40% since going public.

That’s according to an analysis of The Crunchbase Billion-Dollar Exits Board, a list of U.S. venture-backed companies’ with first exits valued at $1 billion or more.

How the class of 2022 performed

Tech stocks overall in 2022.

New listings fared even worse. Of the 29 U.S.-based venture-backed companies that went public at $1 billion or more last year, over two-thirds are trading more than 80%  below their listing price.1

Three of the companies —, and — went public via a traditional IPO, an illustration of how tepid the reception for tech stocks has been. The majority — 25 companies — were SPAC listings. Cannabis product supplier was the single direct listing.

However, six of the companies are down less than 25% from the price at listing which include the three companies that went public via a traditional IPO.

The single company of this batch that is well above its listing price is biotech company Amylyx Pharmaceuticals, which develops solutions for Alzheimer’s and other brain diseases.

Other listings currently valued above $1 billion include semiconductor company for 5G wireless Credo Semiconductor, electric motorcycle company , gene editing biotech company Prime Medicine, and small modular power company . These four companies are flat or down less than 25%.

Down a lot

The most highly valued listing of the 2022 cohort was New York-based , a B2B service that uses AI to assess creditworthiness for loan applications for its partners. It went public via a SPAC merger that valued it at $8.5 billion. The business is now worth less than a tenth of that value, at $637 million, as of May 11, 2023.

The next most highly valued IPO was blockchain infrastructure provider , valued at $4.3 billion in a SPAC merger. As of this writing the company is valued at $129 million less than one-thirtieth of that value.

And neobank , which supports its customers with no overdraft fees and access to early paychecks, was valued at $4 billion on its SPAC merger and is worth around $55 million.

Of the companies that raise the most in funding, peer-to-peer car sharing company stands out. It raised $541 million and is valued at $32 million. And short-term rental company raised $529 million and is now worth $91 million.

Looking forward

We will start to see some activity by the fourth quarter of this year, predicts , founder of IPO advisory firm .

“Many raised significant funds in 2020 and 2021, but they are using that cash and will likely be more comfortable adding to the treasury as the current funds are used in growing the business,” she said. And of private funding, “the free-flowing sources of funds so available in previous years, have dried up.”

That said, Buyer notes that IPO hopefuls will need to temper their expectations: She predicts that the lofty public multiples we saw in 2021 aren’t coming back soon, if ever.

Two things need to come together for companies to go public, Buyer said.  First, “the bid-ask spread needs to narrow,” which means IPOs will need to be valued rationally — perhaps smaller with lower valuations than these companies previously aspired to.  If companies grow according to their projections, they can always raise again later, at higher values.

Second, companies will also “need some comfort on the macro environment before offering a financial outlook,” Buyer said. With the current recession uncertainty it is difficult for companies to forecast revenue in the coming quarters and years.

Companies that missed the 2021 IPO window include , , , and to name a few, all founded over a decade ago.

The general consensus is the markets will likely open up in 2024, said Freese. But he agrees we could see more activity in the second half of 2023.

Either way, it will be interesting to see who is ready to test the markets and what a rational valuation could look like.

Related reading

• The Biggest Startup IPOs Of The Past 10 Years Are All Below Their First-Day Price
• The Crunchbase Billion-Dollar Exits Board
• The Crunchbase ������Ƶ
• A Bunch Of AI-Related Companies Are Going Public Via SPAC

Methodology

We include public debuts in 2022 for U.S. venture-backed companies valued at $1 billion or more at the IPO price. We only include a company on its first exit.

Public market valuations for these companies were assessed on May 11, 2023.

• Reach out to gene@crunchbase.com should a company be missing from The Crunchbase Billion-Dollar Exits Board.

Illustration: Dom Guzman