Midyear Forecast: Top Trends To Watch In H2 2024 — From Chips To AI Funds

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So far, 2024 has proceeded very much like 2023 in the startup world.

AI is still the dominating talk of venture capital, funding is slightly up but most seem unsure if that’s a trend or a passing moment, and the IPO window is still only a bit ajar.

What may happen in the second half?

Well here’s a look at five trends Crunchbase News’ editors and reporters have been watching this year. Take them with a grain of salt — late last year we said AI valuations may come down.

Don’t bet on that big pickup in M&A

It seemed like for most of last year everyone pointed to 2024 as the year M&A would make a big comeback after several quarters of being down.

That big comeback just isn’t happening — at least not for VC-backed startups.

In fact, M&A is down through the first half of this year, with only 904 deals involving startups consummated, per Crunchbase data. There were more than 1,000 in H1 last year.

The reasons are varying — from interest rates to regulations to valuations still being too high — but the takeaway is that deals just aren’t getting done.

Sure, there are some, including two $3 billion deals in Q2: Merck buying privately held biotech EyeBiotech for as much as $3 billion, and Hg buying AuditBoard for more than $3 billion.

But there just haven’t been a lot. While valuations have come down, apparently it has not been enough for buyers in the market. In addition, the November election hangs over everything — and buyers are likely to see what the regulatory atmosphere is expected to be like after the outcome before making a big acquisition (although it seems one can expect a slow antitrust regulatory process no matter what happens).

There are, however, some reasons to be optimistic about an M&A revival. The valuation reset that occurred after the market correction in 2022 and 2023 has had some time to settle. Now acquirers have a much better idea of what they’re willing to pay for a company, and acquirees have a clearer sense of what they’ll accept. Also, the historic backlog of unicorns that have not yet exited means there is a large supply of strong, still-private companies for acquirers to pick from.

Perhaps a big deal will jumpstart the market (like the now dead Google/Wiz may have if it hadn’t collapsed). But haven’t we been saying that for a while?

Chips are getting big money

Chipmakers have been in the news recently as trade sanctions and stock prices have made headlines.

However, chipmakers also have caused a stir due to some of the big cash they’ve raised — or are about to raise.

Semiconductor startup funding was up about 25% through the first half of this year as VC-backed companies raised about $5.5 billion, per Crunchbase data. The number includes huge rounds by the likes of PsiQuantum, Celestial AI and Etched.ai.

Just last week, both DreamBig Semiconductor and Halo Industries raised good-sized rounds.

Of course, what is leading to this renewed investor interest in chipmakers is AI. Folks are looking for specialized generative AI chips that are more cost-effective and energy-efficient, but also faster.

Artificial intelligence is the driving reason chip giant Nvidia is now a $3 trillion-plus company. And while shares of Astera Labs are off their highs, they are still well above their IPO price from March.

Investors do not expect things to slow down. While investing in semiconductor startups is highly specialized, those in the field say there is renewed interest and increased competition on deals.

More big rounds could be on the way, as it has been reported smartphone-maker Samsung is leading a round of at least $300 million for Toronto-based AI chip startup Tenstorrent, and Groq is looking to raise a fresh $300 million.

Also, it has been reported that artificial intelligence chips startup Cerebras Systems has filed confidentially for an initial public offering. It’s a good time to be an AI chip developer.

Everybody’s mind is on chips right now — and that’s unlikely to change.

Will AI funding keep growing?

Funding to AI-related companies surged this past quarter, the highest since the launch of ChatGPT. Funding almost doubled year over year and quarter over quarter to $24 billion. Meanwhile, concerns from venture spread with the massive capital expenditure required to invest in GPUs to fund this innovation, without clear revenue in sight.

Proportions were up as well. So far this year, 1 in 4 dollars invested went to AI-related companies. In 2023, AI-related startups raised just under 1 in 5 dollars.

Will the increase continue? Our findings show that global funding was choppy quarter over quarter, driven by the size and number of mega rounds of $100 million or more. AI is no different. Funding might come down, but the pervasive influence of AI will continue.

New scout funds?

Menlo Ventures and Anthropic announced a new $100 million joint AI fund, named Anthology.

Could this be the latest version of a scout fund as venture firms compete to get access to deal flow through well-connected operators? The fund brings together the sourcing of investments by large language model developer Anthropic with the support of a seasoned venture capital firm, in this case Menlo Ventures.

In recent years, AI companies have launched their own funds. OpenAI has OpenAI Startup Fund with $175 million in committed capital, with investments in Harvey, Milo and Speak. Nvidia setup NVentures in 2021, and made investments in Twelve Labs, MindsDB and recently EvolutionaryScale. And Databricks Ventures, also established in 2021, made investments in Mistral AI, Perplexity AI and Glean. We spoke with Andrew Ferguson who set up the Databricks venture outfit with the aim “to strengthen the ecosystem of partners that are around us.”

Who is next? Mistral AI? Cohere? AI21 Labs?

Project finance will pick up

For startups with high infrastructure investment costs, debt financing has long been a popular option. And in recent months, we’ve seen some historically large debt rounds.

To illustrate, we used Crunchbase data to aggregate a list of six venture-backed companies that raised debt financings of $1 billion or more this past year.

Large project financing rounds are particularly prevalent for the cleantech space. In January we saw Swedish companies raise two of the largest debt financings: Sustainability-focused battery manufacturer Northvolt landed $5 billion, and steelmaker H2 Green Steel closed on $4.6 billion. In the tech sector, meanwhile, AI cloud infrastructure startup CoreWeave secured $7.5 billion in debt financing in May.

Looking forward, with interest rate cuts widely expected in coming months, debt financing could look increasingly attractive. Additionally, given the large supply of companies that raised huge sums of equity funding a few years ago, debt financing offers a less dilutive way to capitalize companies for further scaling.

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Illustration: Dom Guzman

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