CB Insights, a leading market intelligence firm, recently released its global State of Venture report for Q2 2024. According to the report, global venture funding rose 8% QoQ to $65.7 billion, although well below Q2 ’21’ peak of $158.4 billion. Additionally, the overall decline in the number of deals offset the growth in funding.
Artificial intelligence (AI) became the dominant sector, capturing a significant share of funding as AI achieves ubiquity. However, a global divide emerged, with the US and Europe experiencing funding growth while Asia dropped.
The first half of 2024 presented a dynamic global venture capital funding picture. However, uncertainty persists as we move into the second half of 2024.
In this article, we’ll highlight some key takeaways from the report. We’ll also discuss the global investment landscape and venture capital trends for the second half of 2024.
Venture Funding Rising but Outlook Uncertain
Over 6,230 deals received $65.7 billion in investment in the second quarter. A significant portion, 28%, went to AI startups. However, despite the rise in funding, deal volume decreased for the ninth consecutive quarter. The first half of 2024 saw a 6.6% decline in total YoY funding.
The growth momentum will likely continue in the second half. Key factors impacting the growth include.
- Abundant Dry Powder. Substantial capital remains on the sidelines. The venture capital industry had an estimated $311.6 billion of capital to invest as of December 2023. Political and economic outcomes in the latter half of 2024 will drive sentiment.
- Rising Interest Rates: Globally central banks remain cautious maintaining a tightening bias. The decision from the US Federal Reserve Bank to hold firm on interest rates will most likely keep venture capital money on the sidelines in the near-term.
- AI Transformation: AI continues its march toward disruption and transformation, creating new opportunities for innovative startups. The impact of AI on jobs remains a major concern across the global workforce.
AI Startup Funding on the Rise
A defining trend of the first half of 2024 was the surge in AI startup funding. Over 28% of investment during the quarter went to AI startups. We expect the trend in AI startup funding to continue in the second half as AI remains a tech innovation 2024 story.
Recent advancements in Generative AI are growing rapidly across various industries. Major industries benefiting from the investment boom include healthcare, finance, manufacturing, and retail. The top three largest equity deals in Q2 24 were xAI ($6 billion), G42 ($1.5 billion), and CoreWeave ($1.1 billion)
Several factors are contributing to the rise of AI investment.
- Rapid Technology Advancements: Cutting-edge AI and machine learning algorithms can now handle complex tasks. AI’s capabilities continue to encroach on human intelligence. For example, ChatGPT’s ability to converse like a human (turning) improves capabilities, demonstrating exponential progress in AI’s capabilities.
- Growing Computational Capabilities: LLMs are becoming more sophisticated, requiring significant computing power. The ecosystem for training and developing AI algorithms, as well as big data, chip, and cloud computing, is witnessing exponential growth.
- AI’s Promise and Benefits. Businesses recognize that various AI technologies, such as machine learning, can substantially improve business models. AI-powered solutions can enhance business activities by automating tasks and gaining deeper customer insights. Nevertheless, concerns remain as over 40% of the global workforce may be impacted by AI.
A Global Divide in Venture Capital Funding
While funding rose in the United States and Europe in the first half of 2024, funding declined in Asia. These global funding trends will likely persist in the second half.
The continued dominance of the US venture capital market is likely due to several factors.
- The US Startup Dominance: The US remains the leading startup ecosystem worldwide. It benefits from a well-developed venture capital ecosystem with a large pool of experienced venture capitalists, angel investors, and institutional investors. San Francisco (Silicon Valley) remains the dominant local startup ecosystem worldwide.
- Location of AI Startups: The US is home to innovative startups such as Anthropic, Mistral AI, and Udio AI. These companies and many others offer solid growth potential and disruption, making them attractive investments for venture capital. In 2Q ’24’, the US produced 12 new unicorns, compared to 2 in Europe. No other regions produced unicorns during the quarter.
- A Weaken European Ecosystem: The rise of European venture capital funding continued in 2Q 2024. The European startup ecosystem benefits from an increasingly supportive regulatory environment for startups and the growing availability of capital from European investors. However, national and local startup ecosystems remain under pressure. Asian startup ecosystems such as India and Singapore are emerging as alternatives.
The decline in venture capital funding in Asia is a cause for concern. Funding to Asian startups declined 13% QoQ to $9.7 billion. These levels represented the first time Asian investments fell below $10 billion in decades. Moreover, Asia represented 29% vs 39% in the US. The share in Asia is well below its peak of 39% in Q3 ’21’
While China led the funding decline, other regional concerns are emerging. Headwinds faced by Southeast Asia unicorns, political tensions in the West Philippines Sea, and regulatory challenges in China are raising uncertainty among investors. However, we see longer-term potential as new opportunities emerge benefiting from Asia’s favorable socioeconomic and demographic trends.
Breakdown of Global Trends:
Let’s break down some key global trends in VC funding:
- Funding Momentum vs. Deal Flow: Funding has increased for the past two quarters, offset by a decline in deal volume. This suggests a trend towards larger deals and a more cautious investment environment.
- Regional Disparities: The US continues to dominate capital raised, accounting for 39% of global venture funding during the quarter. Asia secured $9.7 billion (29% of deals), and Europe received $14 billion. Notably, India ($2.7B), Singapore ($700M), and Japan ($700M) all experienced increases in funding during this period.
- Mega-Round Dominance: Mega-rounds (deals valued at $100 million or more) constituted 47% of total funding in Q2 2024. In Q2 2024, the US led in mega-round funding with $20.6 billion across 64 deals. Europe was second with $5.2 billion across 23 deals. and Asia ($4.1 billion across 14 deals).
- Early-Stage Still Significant: Early-stage investments remained the majority of overall deal activity accounting for 68% of deals in 1H ’24’. The US, Asia, and Europe accounted for 91% of the early-stage deals share in 2Q. The average deal size of $2.2 million remains in a tight range over the past several quarters and up from $1.5 million in 2020.
2nd Half Outlook: Uncertainty & Transformation
Several macro trends are shaping the global economic landscape in the second half of 2024. These forces will significantly influence market behavior and investment decisions. From evolving monetary policies to technological disruptions and shifting political dynamics, here are key areas to watch.
Global Economic Growth Outlook
Despite notable regional variations, the consensus on global economic growth remains cautiously optimistic. The World Bank expects subdued global economic conditions. It forecasts GDP growth of 2.6% in 2024 before rising to 2.7% in 2025-26. Emerging market growth should outpace developed economies.
The US economy has shown unexpected resilience, with many experts projecting growth of around 2.4% for 2024. However, inflation, interest rates, and potential recession risks persist. EU economic growth is forecast at 1.0% with inflation falling to 2.7% in 2024 and 2.2 in 2025. EU job growth remains robust with unemployment at record lows.
In China, economic recovery remains a key focus. The IMF expects growth of 5.0% in 2024 and 4.5% in 2025. The country continues to navigate multiple challenges across various sectors. China’s main goal remains to boost domestic consumption.
Inflation should remain acceptable, averaging 3.5% in most major economies. However, it will stay above pre-pandemic levels. Analysts expect central banks to continue increasing interest rates soon to hedge against inflation risk.
US Elections
The upcoming US presidential election continues to generate significant attention from global investors and analysts. Many analysts expect a highly polarized and closely contested race. Economic issues, particularly inflation and job market strength, will likely play a crucial role. Its outcome will have a transformational impact on the US and global markets.
The outcome of Congressional elections is equally important, with potential implications for fiscal policy, regulation, and international trade relations. Many analysts highlight the risk of political gridlock if government control remains divided.
Policy areas of particular interest to markets include healthcare reform, tech regulation, climate change initiatives, and US-China relations. The outcome of the election will determine the direction of these policy initiatives.
Startup Sector Trends
In the US, artificial intelligence and machine learning dominate startup investment and innovation. However, emerging technologies such as climate tech, including renewable energy and sustainability solutions, are also attracting significant attention. Healthcare technology remains a strong focus, particularly in telemedicine and personalized medicine.
Asian startup ecosystems are seeing robust activity in fintech, e-commerce, and mobile services. In India, Edtech, digital payments, and web development are notable growth areas. Southeast Asian markets are experiencing a boom in super-apps (Mynt, Grab) and last-mile logistics solutions. In China, despite regulatory headwinds, advanced manufacturing, transportation, and Agtech startups are gaining traction.
European startups are making strides in green technology, focusing on clean energy and sustainable transportation. Fintech remains strong, particularly in areas like open banking and blockchain applications. Interest is also growing in deep tech startups, especially those focused on quantum computing, data analyitics, and advanced materials.
For more analysis on the global startup ecosystem analysis, you can read our recent blog on global startup hubs
Across all regions, cybersecurity and data privacy solutions are in high demand. The rise of remote work has also spurred innovation in workplace collaboration tools and HR tech with companies such as Deel.
Funding environments vary, with some analysts noting a more cautious approach from venture capital firms compared to the exuberance of recent years. However, startups addressing pressing global challenges or demonstrating clear paths to profits continue to attract investor interest.
While economic uncertainties persist, the global startup ecosystem remains dynamic, with innovation driven by both technological advancements and evolving societal needs.
Global Tensions Rising
Global tensions remain a significant concern for global markets and economic growth prospects. The ongoing war in Ukraine continues to impact energy markets and global supply chains, and further escalation remains likely.
US-China relations remain strained, with issues surrounding Taiwan, trade policies, and technological competition creating uncertainty for businesses operating in both countries.
The Middle East remains a flashpoint, with conflicts and tensions potentially disrupting oil supplies and global trade routes. Recent attacks in the Red Sea are causing alarm requiring shifts in the supply chain strategies. Additionally, climate change-related risks are now part of global risk analyses. Concerns about resource scarcity, migration patterns, and extreme weather events potentially will exacerbate existing tensions.
Cyber warfare and disinformation campaigns are also emerging as significant global risks, potentially disrupting critical infrastructure and influencing political outcomes. Businesses and investors must incorporate robust global risk assessments into their strategic planning. Conditions are fluid and can change at any moment.
A Pivotal Moment
As we enter the second half of 2024, the venture capital landscape presents opportunities and challenges. Global funding continues to move upward, led by AI innovation. However, regional disparities and declining deal volumes signal a more cautious investment climate. These conditions we expect to persist into 2025.
The dominance of mega-rounds suggests a preference for mature companies, yet early-stage investments remain crucial. Global tensions, upcoming elections, and economic uncertainties loom large, potentially reshaping market dynamics. However, amidst these challenges, innovative startups addressing pressing global issues continue to attract investor interest.
The venture capital ecosystem’s resilience and adaptability will be key as it responds to evolving technological, economic, and societal needs. Funding trends, startup innovation, and macro-economic factors will undoubtedly shape the future of the venture capital sector and global entrepreneurship.
To further discuss our take on the report or new ideas for business reach out to the team at ClearSky 2100 Ventures. Be sure to follow us on LinkedIn.
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