North American startup funding retreats in Q3, but AI investment remains robust
Venture capital deployed $92 billion across U.S. and Canadian startups in the third quarter, down 35% sequentially but up 50% year-over-year, as mega-rounds for OpenAI and Anthropic failed to materialize.
The third quarter saw a pullback in capital flowing to North American startups compared to the prior three months, falling well short of historical highs. The decline, however, stems primarily from the lack of blockbuster funding rounds for OpenAI and Anthropic rather than signaling a broader contraction in venture appetite.
According to Crunchbase data, $92 billion flowed into seed through growth-stage rounds across the U.S. and Canada in Q3. While this represented a 35% drop from the second quarter, it marked a 50% increase from the same period last year. The number of deals remained relatively stable, with early and late-stage round counts staying close to prior quarter figures.
Artificial intelligence dominated investor attention during the quarter. Roughly two-thirds of all funding went to AI-focused companies, with significant capital flowing to large rounds for Databricks, Safe SuperIntelligence and Crusoe.
Investment declined across most funding stages. Early-stage dealmaking experienced a particularly steep drop from its multiyear peak in the previous quarter, while later-stage funding also retreated.
Late-stage and technology growth funding
Late and growth-stage rounds captured the bulk of quarterly venture capital. Investors deployed $66.45 billion into these deals, up roughly one-third from year-ago levels but down sharply from Q1 and Q2, when OpenAI and Anthropic raised $110 billion and $65 billion respectively.
The quarter's largest late-stage and growth rounds went to Databricks at $5 billion, AI infrastructure company Crusoe at $3.9 billion, The Boring Co. at $3 billion, and AI coding startup Cognition at $2 billion. More than a dozen startups secured late-stage or growth rounds exceeding $1 billion.
Early stage
Early-stage funding remained elevated in Q3 despite a sequential decline from prior highs. Investors committed $20.6 billion to early-stage rounds, down from the previous quarter but still well above year-ago levels.
A handful of exceptionally large rounds boosted the quarterly total. Open source AI company River AI raised $1.1 billion in its Series A, nuclear startup Valar Atomics secured $660 million in Series B funding, and chip developer Fab2 pulled in $500 million in Series A capital.
Seed
Seed-stage activity remained brisk in Q3. At least $5 billion went to seed, angel and pre-seed rounds, slightly below both the prior quarter and year-ago comparisons. Crunchbase expects the Q3 figure to increase modestly as seed deals are typically added to datasets weeks or months after closing.
The AI sector produced some of the largest seed rounds. Physical AI startup Walden Robotics raised $300 million, while Veeda AI secured $90 million.
AI
AI-focused startups maintained their commanding share of quarterly funding. A total of $61 billion went to AI-focused rounds, down sharply from the prior two quarters but still ranking among the highest quarterly totals on record.
Exits
M&A
Acquisition activity proved fairly vigorous in Q3, driven by several large AI-related transactions. Nvidia's purchase of open model development platform Hugging Face for $12.93 billion topped the quarter's M&A activity.
AMD's acquisition of World Labs, an AI model and research lab led by AI pioneer Fei-Fei Li, followed in second place with a stock deal valued around $8.2 billion. Stripe's August acquisition of OpenRouter, which routes prompts through different AI models, came in third at approximately $7.5 billion.
North American startups saw 11 acquisitions at reported prices of $1 billion or more during Q3.
IPOs
The IPO market proved relatively quiet in Q3. A total of 17 venture-backed North American companies went public on major U.S. and Canadian exchanges, collectively raising just under $4 billion.
Three biotech companies raised the largest sums: Adarx Pharmaceuticals, focused on mRNA; Braveheart Bio, a cardiovascular therapy developer; and Electra Therapeutics, which is working on antibody therapeutics. Standard Nuclear, a developer of advanced nuclear fuel, and Lime, the scooter and e-bike rental platform, also completed notable public debuts.
The quarter's most significant IPO storylines involved deals that did not happen. Anthropic is reportedly eyeing a public listing as early as November, while OpenAI filed confidentially for an IPO in June and is expected to debut in 2027.
Slower, but not a slowdown
Q3 demonstrates that funding activity can decline from peak levels without indicating a bearish shift in the investment climate. While giant funding rounds contracted, the maturation of OpenAI and Anthropic into even more valuable pre-IPO companies represents exactly the kind of outcome venture investors seek.
Large rounds continue closing at a robust pace. The AI sector regularly produces fresh unicorns. Acquirers are snapping up leading companies at historically elevated valuations. Though conditions could deteriorate, AI-driven momentum persists for now.