Global startup funding saw a notable increase of 16% in the second quarter (Q2) of 2024, largely driven by an uptick in mega-rounds, particularly in the Artificial Intelligence Sector.
The increase in funding highlights the growing investor confidence and enthusiasm for innovative technologies and disruptive business models, especially those leveraging AI.
Analysis from crunchbase data revealed that AI was the leading sector for the first time since the launch of OpenAI’s ChatGPT. Funding to companies in AI more than doubled quarter on quarter (QoQ) to $24 billion, representing 30% of all dollars invested, the largest quarter for AI funding in recent years.
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Five out of six billion-dollar funding rounds went to Al companies. Elon Musk’s xAI raised $6 billion, and Al infrastructure provider CoreWeave raised $1.1 billion. Automated driving company Wayve, data preparation company Scale AI and AI biotech company Xaira Therapeutics each raised billion-dollar rounds.
Healthcare and biotech was the second-largest sector, raising $17 billion. Hardware companies in large part due to Al infrastructure and semiconductor funding – raised $11 billion.
Meanwhile, despite the global uptick in startups investment for Q2, crunchbase data reveals that it does not necessarily signal a venture market comeback. Global funding reached $147 billion in H1, marking a 5% decline year over year (YoY), down from the $154 billion invested in H1 2023. And funding was flat compared to the second half of 2023.
“Since 2023, funding has fluctuated quarter by quarter based on an increase in large growth rounds to pre-IPO comoanjes and to companies in the AI sector. This past quarter is no exception”, the report stated.
Reasons For Surge in Investments in AI Startups
The Al sector has become a major focus for venture capitalists and investors, who are eager to support companies developing cutting-edge technologies. This has captured significant attention from venture capital investors in recent years. Al startups are attracting significant investment due to their potential to transform traditional business processes and create new market opportunities.
Since 2020, the AI market has nearly tripled, projected to reach $305 billion in revenue with 315 million users in 2024. Amid a general decline in VC funding across various sectors, AI companies have continued to attract investment. These companies are attracting huge rounds of funding reminiscent of 2021, when low interest rates and pandemic growth pushed investors to take risks on tech investments.
The AI boom that started in late 2022 has become the strongest counterpoint to the broader start-up downturn. The sector’s dominance in funding rounds is not surprising, given the widespread adoption of Al across various industries, including healthcare, finance, retail, and autonomous vehicles.
According to PitchBook, which tracks start-ups, investors poured $27.1 billion into A.I start-ups in the United States from April to June, accounting for nearly half of all U.S. start-up funding in that period. The increase in funding, particularly in Al, suggests a robust pipeline of innovative startups poised to bring new products and services to market. It also reflects a broader trend of digital transformation, where businesses and consumers increasingly rely on Al-powered solutions.
This funding surge is likely to fuel further innovation, competitive differentiation, and technological advancement in the global startup ecosystem. Overall, the second quarter’s global startup funding, underscores the importance of Al as a key area of growth and investment in the startup landscape.