U.S. startup funding is up, but number of deals is down
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U.S. startups received significantly more venture capital funding in Q2 2024 than in the prior quarter or in Q2 2023, according to data released Wednesday by PitchBook and the National Venture Capital Association.
Yes, but: The number of startups receiving such funding, however, was significantly lower — reflecting how a small number of giant AI deals are skewing the data.
What they're saying: "My big takeaway is that the venture market continues to be pressured and it's going to continue for a while," Nizar Tarhuni, PitchBook's VP of institutional research and editorial, tells Axios. "We're seeing VCs deploy less capital, making it harder to raise new money, and then there's less money to deploy."
- "But we're also seeing a lot of sloppy Series A deals get done for AI startups, with two-page docs and $15 million checks," he adds. "This is what happens in a hype cycle."
A few items that caught our eye:
Valuations are up but may be misleading.
- Pre-money valuations soared for growth deals, hitting a $238 million median. But a lot of that is born of existing unicorns that held off fundraising for a couple of years, only returning to market when it was necessary.
- "Over half of the companies raising at high valuations also had high valuations when they last raised in 2021 or 2022, and aren't getting big step-ups," Tarhuni explains. "The mediocre ones are raising non-priced rounds or aren't able to raise at all, so what looks like strong valuations is masking what's really happening."
Female-founded startup funding is way down, both from last year and its 2021 peak. This is true for both dollars and deal count.
- One hypothesis is that VC firms became more intentional about finding and funding such companies in the wake of Me-Too, and have since lost that focus.
Investor protections "have become prominent within term sheets."
- Kyle Stanford, PitchBook's lead VC analyst, explains that this is more about a marked increase in cumulative dividends than it is about liquidation preferences.
There's geographic consolidation throughout the lifecycle.
- Around 77% of large deal value went to companies in the four top VC hubs: SF, NYC, LA, and Boston. That's not too uncommon.
- More surprising was that those hubs also secured a slight majority of early-stage dollars, which tend to be more dispersed. This seems to be a result of the AI boom, in which the entrepreneurial ecosystems are more concentrated than in general tech or biotech.
