Global venture capital funding took a hit in the third quarter, but AI startups accounted for 31% of all global funding.

Venture capital funding for startups globally dropped 21% year over year to $54.7 billion in Q3, according to CB Insights’ State of Venture Funding Q3 report, published Oct. 3.

“This is surprising, because we did see a couple consecutive quarters of gains without much in significant changes to justify the decline,” Benjamin Lawrence, managing analyst at CB Insights, said during the firm’s Venture Capital Outlook webinar on Oct. 8. “This is simply randomness, maybe, as we oscillate around the bottom of the market.” 

AI startups received the lion’s share of investment, accounting for $16.8 billion, or 31% of total VC funding for the quarter, Lawrence said. 

“AI startups took home five out of 10 top equity deals in the quarter,” Lawrence said, adding that they are “sucking out oxygen from the room for everyone else.”  

“Despite the bullishness of investors, many AI startups will struggle to live up to these expectations, and many will ultimately fail,” due to the highly concentrated market and overvaluation of startups, he said. 

AI winners

The United States dominated AI funding in Q3, with 43% of all AI-driven funding rounds going to U.S. companies, the report stated. 

AI-driven startups that raised funding in Q3 include: 

• Responsible AI deployment company Safe Superintelligence, which raised $1 billion in a series A round led by Sequoia Capital, DST Global and Andreessen Horowitz that closed on Sept. 4; 

• Customer management software firm Clio raised $900 million in a series F round led by Technology Crossover Ventures and JMI Equity that closed on July 23; and 

• Workflow automation company Groq raised $640 million in a series D round led by BlackRock, Cisco and Samsung Catalyst that closed on July 11. 

Fintech funding drops

The global fintech industry also experienced a drop in funding in Q3, down 7.5% YoY to $7.3 billion, according to the report. 

Factors including a post-pandemic funding boom and hype around crypto and blockchain have created a high funding ceiling for fintechs since 2020, Lawrence said, adding that funding levels aren’t likely to return to those level for a decade.  

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