Study: AI startup funding hits new high of US$17.9bn in Q3

As companies invest in digitalisation, the increasing amount of AI startups has led to funding reaching a record high during Q3

During the COIVD-19 pandemic, digital transformation has accelerated and the AI startup space has continued to grow stronger with increased investments and M&A deals.

According to the latest State of AI report from CB Insights, the global funding in the segment has seen a significant surge, growing from $16.6 billion across 588 deals in Q2 2021 (figures show $20bn due to the inclusion of two public subsidiary fundings) to $17.9 billion across 841 deals in the third quarter. This marks an 8% increase in funding and a 43% increase in deals QoQ.

The quarter saw over 100 acquisitions like the previous one, putting the total exits for the year at 253. The biggest AI acquisition of the quarter was PayPal snapping up Paidly — a company determining creditworthiness using AI/ML — for $2.7 billion, followed by Zoominfo’s acquisition of Chorus.ai — a startup using AI to analyse sales calls — for $575 million.

 

AI startups and unicorns 

So far throughout the year, AI startups around the world raised $50 billion across 2000+ deals with 138 mega-rounds of 100+ million. As much as $8.5 billion of the total investment went into healthcare AI, $3.1 billion went into fintech AI, while $2.6 billion went into retail AI.

In Q3’21, 13 new AI unicorns — 9 in the US, and 2 each in LatAm and Asia — brought the total number of billion-dollar AI startups to 119. LatAm saw its first $1bn+ AI valuations in 4 years, with new unicorns NotCo (AIpowered food tech) and Unico (digital identity protection). Smart search developer Algolia was the highest valued new unicorn in Q3’21 at $2.2bn. Computer vision startup Black Sesame Technologies and drug discovery startup XtalPi were each valued at $2bn.

 

The US is dominating funding for AI startups

Out of the $17.9 billion raised by AI startups worldwide in Q3, a significant $10.4 billion went to companies based in the U.S. and $4.8 billion into those in Asia. However, Asian firms raised this amount in nearly just as many deals (321) as in the U.S. (324), which signals that the average deal size was smaller there. Mega-round deals in the U.S. stood at 24 in Q3, while Asia saw 13 such deals.

Databricks, Dataiku, Olive, XtalPi, Datarobot, and Cybereason were the companies with the biggest rounds in the U.S. in the third quarter.

As compared to Asia and the U.S., funding in Canada, Latin America, and Europe regions was the lowest at $0.4 billion, $0.5 billion, and $1.6 billion, respectively. These regions cumulatively saw just eight mega-rounds.

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