North American startup funding revived in the second quarter, helped by early investments in artificial intelligence.
In total, investors committed $45.3 billion in seed and growth funding for U.S. and Canadian startups in the second quarter of 2024. That’s a 30% increase from the previous quarter and a 35% jump from the same period last 12 months.
For comparison, here is our total funding, color-coded by milestone, for the last 14 quarters:
Looking at the chart above, a broader picture emerges of the enterprise capital ecosystem, which, while still well below its 2021 peak, has been steadily growing since its low point at the end of last 12 months.
But it’s an uneven recovery, with some sectors faltering and others soaring. Artificial intelligence stays a runaway investment favorite as AI-focused startups attracted $16.8 billion in Q2.One company, Elon Musk xAIaccounted for greater than a quarter of all early-stage funding.
Meanwhile, investment activity stays weak or muted in many other areas, including enterprise software, consumer products, and fintech. Moreover, the variety of reported deals actually declined in Q2, reaching its lowest point in years, as shown below:
To higher understand how the quarter performed, below we take a look at investments at each stage, in addition to exits, including each acquisitions and public offerings.
Late stage investments
Let’s start with late-stage investments, which rose barely in the second quarter.
A complete of $19.4 billion went into late-stage and development technology investments in Q2, up 11% quarter-on-quarter and 23% year-on-year. At the same time, deal volume declined barely, as shown in the chart below:
Three corporations have raised late-stage funding of $1 billion or more. The largest round went to Weave CoreAI cloud infrastructure startup that has acquired $1.1 billion in Series C in May conducted by Coat.
Two other individuals have raised billions of dollars in funding: AI scalesa startup dealing with data labeling and evaluation, Wizardcloud cybersecurity solution providers.
While funding has increased, thanks in part to the continued enthusiasm for all things AI, the variety of deals accomplished has actually declined. An estimated 201 late-stage and technology growth rounds were reported in the second quarter, the lowest number in years.
Early phase
Early stage saw the largest increases in Q2, with $22 billion invested. This is a 60% increase from the previous quarter and a 56% increase from year-ago levels.
Meanwhile, the variety of rounds was relatively flat. For comparison, here is the variety of deals and total investment for the past five quarters:
Most of the growth in early-stage investment in Q2 may be attributed to a single deal: $6 billion in xAI B-Series in May.
Despite all this, there have been several other, much larger missiles in the game. Xair Therapya startup that uses artificial intelligence to find and develop drugs, launched in April $1 billion in seed funding. Energy Placewhich produces metal-hydrogen batteries, raised $308 million B-Series financing. I Uniquity Biographyfocusing on drugs used in immunology and inflammation, landed 300 million dollars in May.
Seed Stage
In recent quarters, the seed stage has been the most stable stage for overall enterprise capital investments, and Q2 was no exception.
Investors invested $3.9 billion in reported seed, pre-seed and angel deals in Q2, up 8% from the previous quarter and 5% from the same period last 12 months. For comparison, here’s a chart of the last five quarters:
While the variety of rounds declined barely in Q2, we expect it to extend somewhat as deals at this stage are sometimes added to the database weeks or months after they close.
As usual, there have been several large seed rounds that helped to extend the total funding. The largest by far was $150 million in seed funding Down Bot Companya startup producing home robots. Evolutionary scalecreator of AI models for therapy, undertook $142 millionone sec Risefocused on AI-enabled “agents” for enterprise customers, has landed $97.2 million.
Exits
While Q2 didn’t see many high-profile exits for venture-backed corporations, there have been a few big acquisitions. IPO activity remained muted, although we did see a few good biotech and tech debuts.
MOM
In the software M&A segment, the largest deal of the quarter was that of a software investor Hg$3 Billion Acquisition of Audit Platform Provider Audit council.
In the case of the biotechnology sector, the largest acquisition of the quarter was Merckacquisition by EyeBioeye disease treatment company, for $1.3 billion upfront and as much as $1.7 billion in milestone payments.
Other notable acquisitions in the biotech sector during the quarter included: Biogen‘S purchase With Hello, Bio, Genmab‘S acquisition With DeepBioAND Nowartis‘ acquisition With Mariana Oncology.
Larger software contracts included in the price CyberArk Software‘S acquisition With Venafi AND AlfaSense‘S purchase With Work.
AND AFTER
While it wasn’t the busiest quarter for IPOs, we did see a few venture-backed corporations enter the market.
An organization dealing with data security deserves a distinction Headingwhich listed on the NYSE in April, $752 million raised at an initial valuation of $5.6 billion. Another was Tempusa Google-backed startup using artificial intelligence for precision medicine that raised $410 million in its June debut on the Nasdaq.
Additionally, Entertainment Webtoon made a solid debut in June, with an initial valuation of about $2.7 billion. The online comics publisher, which has its roots in South Korea, is headquartered in Los Angeles.
Big picture
Overall, the Q2 startup investment and exit data provides food for thought for each optimists and pessimists.
On the optimistic side, we are able to point to rising investment totals, continued strength in AI startup funding, and a few big exits. On the pessimistic side, we are able to point to weaker funding in areas like enterprise software and consumer-facing startups, in addition to a large backlog of mature, heavily funded private corporations that have yet to exit.
Since VCs and entrepreneurs are typically bullish, I’d bet we’ll hear more from the “glass half-full” camp in the future about growing investment and the incredible potential of AI. However, it’s clear that there are still many startups and industries that haven’t been a part of the bull run.