Startup valuations are breaking records thanks to AI
The Rundown
📈 Trending Up: Chinese hacking … AI infra spend … clean energy in Europe … SMB optimism … massive Series As in Africa … nepotism … the fight for your podcasting time … Twitter’s “global daily active users,” barely …
📉 Trending Down: Commercial real estate … China-Philippines relations … access to OpenAI … power access in Houston … birth rates, everywhere … flooding preparedness …
💸 Upcoming business data: Today, we’re looking at Q2 venture capital data. More will come, so consider our work below a first course instead of the full meal. Looking ahead, earnings season kicks off next week. Get hype.
🤔 What else? Sam Altman can’t stop doing deals. Now he’s teaming up with Arianna Huffington to help form and fund a new company called Thrive AI Health. It’s the unimaginatively-named union of OpenAI money and tech and Thrive Global, working to build a “customized, hyper-personalized AI health coach.” Sam! No! We want GPT5! Focus!
AI helps bolster second-quarter venture activity
Venture capitalists spent a lot of money buying shares in AI startups in the second quarter. I am sure that you are gobsmacked by this revelation.
Crunchbase News reports that total venture investment in Q2 2024 came to $79 billion, up 16% compared to the first quarter of the year, and a more modest 12% from year-ago data. What drove the uptick? AI funding, which Crunchbase data indicates “more than doubled quarter over quarter to $24 billion,” making the startup segment worth just over 30% of the quarter’s total,
What counts as AI is squishy, so expect other datasets to put up slightly different AI numbers. Still, it’s clear that AI — and in particular massive rounds like xAI’s $6 billion Series B — is the driving force behind any rebound we may be seeing in venture investment. (Web3 funding also ticked slightly higher in the period.)
What’s going on in the United States?
Turning to the United States, the largest single market for venture capital investment, what can we see in Q2 data? Thanks to an early look at PitchBook’s quarterly update with the NVCA, lots. Here’s what stood out to me while reading the data this morning:
With $55.6 billion invested in US-based startups in the second quarter, Q2 2024 was the best three-month period for venture investment in the United States since Q2 2022, when $77.6 billion was disbursed. It’s worth recalling that the third quarter of 2022 was when the venture slowdown we’ve seen in recent years really started to bite.
Venture capitalists are back to 2018-2019 levels of fundraising. Turning the table, how are VCs themselves fundraising this year? Poorly. Through the second quarter, U.S.-based venture investors raised just $37.4 billion. That’s below the pace needed to match what we saw in 2020 ($91.7 billion), 2021 ($176.6 billion), 2022 ($191.3 billion), and 2023 ($81.5). It is, however, trending towards the ~$72-$74 billion that venture investors raised in 2018 and 2019.
Exits are garbage, as they have been for years.
And then there were valuations. Which in the United States are at record highs, near record highs, or recovering.
I’m serious. Here’s the data, via PitchBook and the NVCA: