Despite a record-breaking first half of the year, AI startups have experienced a significant slowdown in venture capital (VC) funding activity in the third quarter of 2024. As of three weeks before the close of the quarter, total deal value stood at $8.6 billion—a sharp 35% decline compared to Q3 2023. But, 2024 remains a landmark year for AI investment.
Data from AltIndex.com reveals that AI startups have raised $48.4 billion year-to-date, 25% more than the entire total raised in 2023.
Record-Breaking AI Capital Raised Despite VC Funding Slowdown
Following two years of relentless growth, the AI sector is facing mixed investor sentiment. This is largely driven by a range of factors, including the US government’s extended export restrictions on AI chips to China, anticipated interest rate cuts, concerns over the valuations of AI giants, and underwhelming earnings reports from major players in the industry.
This more cautious outlook has led to a significant drop in VC funding in the third quarter, with the total value of deals down 35% year-on-year, falling to $8.5 billion. The number of deals has also dropped sharply. Crunchbase data indicates that AI startups secured 638 VC investments in the first nine months of 2024, compared to 914 in the same period of 2023.
Despite this decline, AI startups have still managed to raise significantly more funding than last year. In 2023, VC investors injected $38.8 billion into the AI sector—25% less than what has been raised so far in 2024. The $48.4 billion accumulated in the first nine months of this year has set a new record, surpassing the previous high of $48.3 billion raised in 2021.
Cumulative AI Funding Exceeds $237 Billion
The total amount of funding raised by AI startups in 2024 has pushed cumulative sector funding to over $237 billion. By comparison, this is $13 billion more than the total funding received by the IT startup market.
US companies have dominated the field, raising almost 65% of the total, or $151 billion, with California emerging as the leading hub. Asian AI firms have attracted far less, securing nearly $52 billion in funding, while European startups follow with $31.3 billion.
Crunchbase data shows that the bulk of VC investments in the AI sector has been directed towards machine learning startups, which have raised $113.6 billion to date. AI software companies follow with $76.8 billion, while startups in the information technology segment have garnered $59.5 billion.
