Despite AI startups raising nearly $30 billion this year, early-stage investors are showing signs of AI fatigue. The second quarter of 2024 is seeing fewer deals, with projections pointing to only about 900 funding deals, down from 1,052 last quarter. This marks a nearly 30% drop from the same period last year, based on Crunchbase data.
Early Funding Rounds See Decline
The decline is most noticeable in angel, seed, and early-stage funding rounds. However, there’s good news for AI startups: the dollar amount raised is up. More than $16 billion has already been raised in Q2 2024, making it one of the highest-dollar quarters since early 2022. This increase is driven by significant rounds, including five raises over $1 billion by companies such as xAI, CoreWeave, Xaira Therapeutics, and Scale AI.
Seed Funding Drops
Despite large-dollar rounds, overall deal volume is decreasing, especially in seed and angel rounds. Only 423 seed/angel rounds were announced through the first week of June, setting a pace of just over 600 funding rounds. This is a sharp drop from the 779 deals in Q1 and about a third lower than Q2 2023. Total funding for these rounds is expected to be between $1.3 billion and $1.4 billion, slightly below the $1.6 billion in Q1 and the $1.5 billion in Q2 2023.
Early-Stage Deals Slow
Early-stage deals are also slowing. The quarter is on track for a similar number of deals compared to Q1, but this still marks a decline of over 15% from Q2 last year. However, the dollar amount is up, with $9.8 billion raised in early-stage deals compared to $6.4 billion last quarter and $4.7 billion in Q2 last year. This increase is heavily influenced by xAI’s $6 billion round, which accounts for nearly 60% of the early-stage funding total. Major players like Valor Equity Partners, Andreessen Horowitz, and Sequoia Capital joined this round.
What This Means for AI Startups
The slowdown in deal volume might indicate that investors are becoming more selective, focusing on larger rounds for more proven companies. Alternatively, it might reflect early investors’ fatigue with the AI narrative and rising prices.
A decline in early-stage volume could lead to fewer companies seeking large growth rounds in the next 18 to 24 months, as some may not have received early funding to reach later stages. Despite this, the high dollar amount shows that investors are still willing to invest billions into AI-related ventures, albeit in fewer deals.
Methodology
The data in this report comes from Crunchbase and is based on reported information as of June 6, 2024. Companies in the data are classified under Crunchbase’s artificial intelligence industry group tag. Some of the decline in deal counts may be due to smaller, seed-stage rounds being added to the dataset several weeks or months after they close.
Glossary of Funding Terms
- Seed and angel rounds: Include seed, pre-seed, and angel funding, as well as venture rounds of unknown series, equity crowdfunding, and convertible notes at $3 million or less.
- Early-stage funding: Consists of Series A and Series B rounds and other rounds between $3 million and $15 million.
- Late-stage funding: Includes Series C, Series D, Series E, and later-lettered venture rounds above $15 million.
- Technology growth: Refers to private-equity rounds raised by companies that have previously raised venture funding.
