Global AI startup activity slowed in the third quarter (Q3) of 2025, with deal volume dropping to 1,295, yet, funding remained robust, surpassing $45 billion for the fourth consecutive quarter.
According to CB Insights’ “State of AI Q3’25 report, despite fewer deals, the average AI investment size continued to rise sharply, reaching $49.3 million year-to-date, an 86% increase compared to last year. Investors are placing larger and more concentrated bets as they pursue long-term AI winners amid escalating infrastructure costs and intense competition in model development.
M&A activity in the AI sector remained near record highs. Q3 2025 recorded 172 acquisition deals, just behind Q2’s all-time high of 181. Notably, three of the five largest acquisitions involved AI agent companies, highlighting the race among legacy enterprise software firms to accelerate their AI product roadmaps through strategic purchases.
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The quarter also featured six rounds valued at over $1 billion. The three largest went to leading LLM developers Anthropic ($13B Series F), OpenAI ($8.3B in private equity), and Mistral AI ($1.5B in Series C), reflecting the massive capital requirements associated with developing frontier models. Although OpenAI reached $12 billion in annualized revenue as of July 2025, the company is still projected to burn approximately $8 billion in cash this year.
Other major deals included infrastructure providers such as Nscale (AI data centers, $1.1B Series B) and Groq (AI inference processors, $750M Series E). These investments mirror the growing importance of technologies enabling AI scale, with references to data centers hitting record highs on Q3 earnings calls and chip development trending toward record funding activity for both training and inference hardware.
M&A remains a major force in the AI industry. Q3 2025 was the second-highest quarter ever for AI startup acquisitions. The U.S. strengthened its dominance, accounting for 59% of all exits its highest share since Q2 2021.
AI Funding by Region
Europe is the most-preferred destination for AI funding. AI startups across the continent raised $5.4 billion across 279 deals and representing 11.3 per cent of the quarterly total. This stands as an impressive 22.7 per cent improvement from the previous quarter, when $4.4 billion was raised.
The Asian region proved to be another powerhouse and one of three regions that recorded a billion dollars or more in quarterly funding. The region recorded $2.9 billion across 297 deals, an impressive 38 per cent increase from the $2.1 billion raised across 300 deals in the last quarter.
Africa remained the least in terms of funding as AI startups across the continent raised $14 million, representing only 0.03 per cent of the total $47.8 billion raised by AI startups globally.
Where AI Deals Are Concentrated
Across more than 1,500 technology sectors tracked by CB Insights, the markets with the highest AI deal activity in Q3 2025 included:Industrial, humanoid robotics, Coding AI agents & copilots LLM developers.
Generative Engine Optimization (GEO) also emerged as a fast-rising segment. GEO tools focus on improving brand visibility across AI-powered search platforms such as ChatGPT and Perplexity, an increasingly relevant area following OpenAI’s September 2025 launch of in-platform shopping features, which signals a shift toward AI-driven commerce and discovery.
AI startups with small headcounts and high potential continued attracting extraordinary valuations. Humanoid robotics company Figure led the quarter with a valuation of $104.3 million per employee, backed by a $39 billion valuation despite having no reported revenue last year (and projecting $9B annually by 2029).
Cognition followed with $98.1 million per employee on a $10.2B valuation, supported by more than $150M in ARR, equating to an exceptionally high revenue multiple of roughly 68x. Other companies at the top of the valuation-per-employee rankings spanned the model layer (Anthropic, Mistral AI, Decart, Harmonic), the infrastructure layer (Baseten), and the application layer (OpenEvidence, Sierra, Irregular).
Whether these valuations prove visionary or overinflated will depend on the companies’ ability to deliver on ambitious revenue projections in the years ahead.
For now, Q3 2025 underscores a clear trend, fewer deals, bigger bets, and an AI market rapidly consolidating as competition for technological leadership intensifies.