Q2’24 saw VC investment in the US rise to $55.6 billion — the highest level since Q2’22 — driven in large part by major mega-deals in the AI space, including an $8.6 billion raise by cloud AI provider CoreWeave and a $6 billion raise by AI systems company xAI.
AI very frothy area of investment in the US
AI was the clear winner with respect to VC investment in the US during Q2’24, attracting all sizes of funding rounds, including several of the largest deals of the quarter; in addition to CoreWeave and xAI, the US saw $1 billion investments in data-focused company Scale AI and AI-powered drug discovery company Xaira Therapeutics. Valuations within the AI space continued to be exceptionally strong compared to other industries, evidenced by the median valuation of AI companies growing significantly in recent quarters. Given some of the big bets being made in the AI space in the US, the fear-of-missing-out (FOMO) was likely a contributor to the strength of VC investment in AI this quarter.
US IPO market sees additional movement in Q2’24
Six-months into 2024, IPO exit value in the US ($28.4 billion) fell just shy of the total amount seen in 2023 ($29.3 billion). Following on the IPOs of social media platform Reddit and AI cloud company Astera Labs in Q1’24, Q2’24 saw additional IPOs by tech marketing firm Ibotta and cybersecurity firm Rubrik. Both companies saw strong initial results, with Rubrik raising $752 million1 and Ibotta raising approximately $577 million in their April IPOs.2 These companies have performed reasonably well since their IPOs, which could spur some additional interest in IPOs heading into Q3’24. There are no indications, however, that the IPO door will swing wide open, particularly given the upcoming US presidential election. While both startups and investors are feeling more optimistic about their ability to go public, any major surge in IPO activity will likely not come until 2025.
M&A exit value in the US was also well ahead of last year’s total at mid-year, but activity remained relatively soft compared to historical norms.
VC investors rewarding the efficiency efforts of startups
For nearly two years, VC investors in the US have put a lot of pressure on the companies within their portfolios to become more efficient — to manage their expenses, to manage their P&L, and to undertake whatever cost-cutting measures were required to extend their operating runway and push out their next funding round. While some companies failed and either ran out of money or got bought out, others succeeded. In Q2’24, VC investors began to reward these efforts, making significant investments in companies that have rationalized their businesses and proven their ability to survive in tumultuous times in order to drive for a 2025 or 2026 exit.
Strong government support for AI innovation in Canada
During Q2’24, the Canadian government showed significant support for the ongoing development of the AI ecosystem in the country. In April, it announced $2.4 billion in AI-related funding, including $2 billion for a fund aimed at providing access to technical infrastructure and computing capabilities and funding to support the creation of an AI safety institute and an office of the AI and Data Commissioner to support enforcement of the proposed Artificial Intelligence and Data Act (AIDA).2
In April, Scale AI — an initiative funded by the Federal and Quebec governments — also announced $31.3 million in funding for twenty-two projects focused on incorporating AI into different industries.3
Trends to watch for in Q3’24
VC investment in the US is expected to remain relatively steady quarter-over-quarter, with the number of $100 million+ mega-deals continuing to grow. AI will likely remain a big ticket for VC investors the US, with increasing interest in industry-specific AI solutions. Given the ongoing focus on energy and cleantech in the US, VC investors will likely also show increasing interest in solutions aimed at reducing the energy requirements of the servers and infrastructure underpinning AI solutions.
Fundraising activity by VCs will likely remain sluggish heading into the second half of the year, except perhaps for funds focused specifically on the AI space; as exit activity increases, it will likely catalyze fundraising activity in subsequent quarters.
M&A activity could rise in Q3’24 as struggling companies look for buyers and corporates and PE firms look for deals.
"When it comes to AI, the global tech giants are really reacting quickly to what’s happening in the market. They’ve made critical decisions, they’ve closed down parts of their business that they were spending money on and rechanneled all that money into AI because they can’t lose the race to be the first to land and then to expand. And that’s why the deals we’re seeing globally are so big — because you need to have the capital to move quickly, and you’ve got to make those bold decisions as to where you’re going to commit large amounts of money to get what you need."
Francois Chadwick
Partner,
KPMG in the US
VC deal value surges to $55.6 billion across 3,108 deals
Median deal size increases at all stages
Deal share by series increase for B and C rounds
Biotech continues to attract investor attention
IPOs gradually begin to return
1 https://finance.yahoo.com/news/microsoft-backed-rubrik-exceeds-ipo-
2 https://www.forbes.com/sites/antoniopequenoiv/2024/04/17/ibotta-ipo-reportedly-raises-577-million-above-marketed-range/
