Despite strong growth from the AI sector, enterprise investments in the third quarter of 2024 were unable to beat the greater than two-year slump.
Here’s the overall takeaway from the third quarter enterprise funding numbers. In every major startup region in the world – North America, Europe and Asia – investment in startups declined in the third quarter, Crunch Base data shows. The only region we monitored to see moderate growth was Latin America, but even there it’s hard to disregard how much enterprise capital funding has fallen since its 2021 high.
At the same time, artificial intelligence clearly dominates. Artificial intelligence startups raised $19 billion last quarter, or 28% of all enterprise dollars. And that doesn’t even cover it OpenAIa massive $6.6 billion round – one of the largest investments in a private company in history – that was officially announced just days after the quarter closed.
Let’s take a closer look.
Global VC funding is declining as large rounds decline
Global enterprise capital financing in the third quarter was $66.5 billion, down 16% quarter-over-quarter and 15% year-over-year, with the decline driven by a decline in large late-stage rounds.
Late-stage funding totaled $34.7 billion globally last quarter, in keeping with Crunchbase data. This performance was flat quarter-over-quarter and declined almost 25% year-over-year as the number of transactions of $500 million or more was lower in comparison with the prior yr.
Notably, last quarter was the second quarter in which enterprise investments fell below $70 billion since the starting of the current funding crisis. Apart from the last quarter and the fourth quarter of 2023, you’ll have to go back to 2017 to search out one other quarter in which global VC investments were below $70 billion.
One shiny spot: Investments in younger startups are doing higher this yr.
Seed funding in the first three quarters of the yr is holding regular (and more likely to show a slight increase as smaller rounds are added to our data set after quarter close), while early stage funding is already trending barely upward – around 10% – our results show data.
Meanwhile, late-stage financing through the third quarter will decline by roughly 20% in comparison with last yr.
AI is becoming dominant
For the second quarter in a row, artificial intelligence was the sector with the highest investment in enterprise dollars. Funding for AI firms has increased this yr not only in terms of the absolute value of dollars invested, but also in proportion.
According to Crunchbase data, in the third quarter, funding for artificial intelligence startups amounted to almost $19 billion, or 28% of all enterprise funding. While this is lower than the $23.4 billion and 30% the sector earned in the second quarter, it is value noting that the second quarter was the largest since mainstream launch ChatGPT at the end of 2022.
Last quarter, artificial intelligence overtook healthcare and biotech ($15 billion invested in the third quarter), hardware ($13 billion) and financial services and fintech ($8 billion), in keeping with Crunchbase data.
Large rounds for AI-related firms in the third quarter are included Alphabetinvests $5 billion in a developer of autonomous vehicle technology Waymo$1 billion round for AI research lab Secure superintelligence$640 million to launch AI semiconductors and software Grokand $500 million for Coherecreator of LLM for enterprises.
These large rounds also underlie one other trend we saw in Q3 results: while total invested funds remain high, deal flow to AI firms has declined over the past two quarters, and in Q3 for the first time since late 2022 dropped below 1,000 rounds.
This trend seems to suggest that it is larger, more proven AI startups that are currently attracting investment in large-scale ventures, reasonably than seed startups and Series A startups.
North America is declining despite AI dominance
Typically, what happens in the North American startup market sets the tone for the rest of the world, but that wasn’t the case last quarter.
North American startups invested $40.5 billion in the third quarter, down 10% quarter over quarter but up 14% yr over yr.
In contrast to the global situation, it was late-stage investments that recorded the biggest gains in the North American startup sector, where $23.8 billion was invested, an increase of 28% q/q. and 19% y/y (Although $5 billion is the result of one round, Alphabetinvestment in a spin-off company related to autonomous vehicles Waymo.)
Meanwhile, early-stage funding on the continent declined 39% quarter-on-quarter but increased 16% year-on-year. The number of rounds has also decreased barely.
It’s no surprise that North America is by far the leading region in AI funding, with nearly $15 billion invested in space, representing over 78% of the world’s total.
Asia has a low level of funding for 10-year-old startups
The decline in enterprise funding has hit Asia particularly hard.
Startup investment in the region fell to $13.2 billion, the lowest amount since hitting $13 billion in the first quarter of 2015, in keeping with Crunchbase data. This number represents a decline of 13% in comparison with the second quarter and a decline of as much as 44% year-on-year.
By far the biggest offender for Asia’s VC decline last quarter was late-stage dealmaking, which totaled just $5.8 billion, down 30% quarter-over-quarter and a massive 62% year-over-year.
Even artificial intelligence was unable to enhance these numbers, as investment in startups in the region and sector fell by 20% quarter-on-quarter and remained unchanged in comparison with the previous yr.
Seed-stage and angel funding for Asia-based startups was down 9% from the second quarter, but up about 6% year-over-year. Early-stage investment in Asia-based startups reached $5.6 billion last quarter, up 12% from the second quarter but down 17% year-over-year.
China is also bearing much of the brunt of falling investment. Startups in the country raised just $6 billion last quarter, down 61% year-over-year, in keeping with Crunchbase data.
Israeli startups also struggled, raising just $700 million, down 23% from Q2 and 46% from Q3 2023.
Investments in start-ups in Europe are falling
In Europe, investment in startups also hit a multi-year low last quarter, with firms in the region raising just $10 billion in the third quarter. This is a decline of 39% year-on-year and marks the lowest quarter of European VC funding in 4 years.
European late-stage financing led the decline in the third quarter, falling greater than 50% year-over-year. Seed investments were down 18% year-over-year and early-stage funding was down 12%.
The UK, Europe’s largest startup market, saw enterprise investment fall dramatically by 43% year-on-year to $3.2 billion.
In fact, the only one of Europe’s three largest startup countries to see an increase in funding last quarter was Germany, where startup investment increased by greater than a third to $2.4 billion (which also overtook France in terms of invested amount by USD 1 billion).
Latin American financing is stabilizing
Latin America is the only region we monitor for enterprise investments to show growth, albeit modest, in the last quarter.
Last quarter, funding for Latin American startups totaled $884 million across all stages, in keeping with Crunchbase data. This represents an increase of roughly 14% each quarter-on-quarter and year-on-year.
(Still, this is a slice of what LatAm startups achieved at their peak in 2021, when the region was the fastest-growing startup investment destination in the world).
Fintech stays the dominant sector for Latin American startups, as evidenced by a number of the largest rounds last quarter. These included $107 million per History$86 million for OCN and $75 million for Finkargo.
Cyber funding is declining dramatically
Cybersecurity is a sector often considered immune to economic downturns. That turned out to not be the case in the third quarter, when enterprise capital funding for such startups around the world dropped 51% quarter-over-quarter to simply $2.1 billion.
While the decline in the value of the dollar has been dramatic, perhaps more surprising is the decline in deal flow, with just 116 cybersecurity financing deals closed in the third quarter, the lowest since the fourth quarter of 2013.
Many aspects look like contributing to the decline in cybersecurity over the last quarter.
One of them is the typical seasonality of the third quarter, in which the quarter largely falls on the summer financing slack. There were no huge deals for cyber startups last quarter either, with the largest being $456 million for a secure communications company Kiteworks.
Finally, the industry may face the same dilemma every startup faces now: tips on how to compete for limited investor attention if you are not an AI startup.