Week of May 6th, 2024

Welcome to AI8’s weekly newsletter, your ultimate source for curated insights and updates from the dynamic world of venture capital!

We’ve scoured the vast landscape of the web to bring you a comprehensive roundup of the industry’s top news articles, all in one convenient place. We keep you ahead of the game and in the know about all things related to the vibrant world of investments

STARTUPS

ROUNDS AND UNICORNS

The Week’s Biggest Funding Rounds: CoreWeave’s $1.1B Raise Leads Huge Week (Crunchbase, 5 minute read)

CoreWeave (AI): an AI cloud infrastructure startup, raised $1.1 billion in a funding round led by Coatue, valuing the company at $19 billion.
Pine Gate Renewables (Energy): a solar and energy storage developer, secured a $650 million investment from Generate Capital, the Healthcare of Ontario Pension Plan, and HESTA. The funds will help finance the creation of three gigawatts of clean energy infrastructure in the US by next year
PsiQuantum (quantum computing): received a $620 million financial package from the Australian Commonwealth and Queensland Governments to build a quantum computer near Brisbane Airport
Motional (autonomous vehicles): a self-driving startup based in Boston, received a $475 million investment from Hyundai and acquired an 11% equity stake in the company from joint venture partner Aptiv
Blackrock Neurotech (Neuroscience): a brain-to-computer interface startup, received a $200 million investment from stablecoin issuer Tether, valuing the company at about $350 million

The State of Venture Funding in 2024 So Far? Anemic (Inc, 5 minute read)

Venture funding has not recovered from the downturn seen last year, remaining on pace with 2023. In the first quarter of 2024, $36.6 billion was invested across 3,925 deals, similar to last year's levels. Last year, the market bottomed out from historic highs generated during a pandemic-driven boom: In U.S. startups, $170.6 billion was invested in 2023, a drop of $71.6 billion from 2022 and $177.4 billion from 2021

The drop has made investors cautious, with geopolitical risks and supply chain disruptions adding to the uncertainty
As a result, investment in startups has been sparse, with startups facing the challenge of extending their runway while demonstrating a clear path to profitability
Investors are now more interested in companies that can generate profits, leading to a tougher environment for raising money compared to the record investment seen in 2021

INDUSTRY

Climate tech investment roars back with an $8.1B start to 2024 (Techcrunch, 5 minute read)

Climate tech startups raised $8.1 billion in Q1, close to record amounts, indicating a strong rebound from 2023's quiet period. While the number of deals slightly decreased, the value surged nearly 400%. Investors focused on materials like green steel and battery minerals

Top deals included H2 Green Steel raising $4.5 billion, Ascend Elements adding $162 million to its Series D, Natron raising $189 million, and Lilac Solutions securing $145 millions
These large rounds suggest a trend toward more substantial investments in climate tech, driven by the need for significant capital to scale up physical goods businesses
The growing need for investment in climate tech, estimated at $230 trillion to reach net-zero emissions, presents a significant opportunity for both investors and founders

No Funding Drought For Climate Risk Software Startups (Crunchbase, 3 minute read)

Software may not be able to prevent natural disasters, but it can help manage and mitigate their impacts. Recent investments in climate-risk management startups, like Arbol ($60 million in a Series B round) and AiDash ($58.5 million in a series C), highlight the growing interest in digital tools for understanding and addressing climate risks

The market for climate risk tools is substantial, with natural disasters causing $380 billion in economic losses in 2023 alone
This figure is expected to rise significantly, reaching between $1.7 trillion and $3.1 trillion per year by 2050
Despite the vast market potential, the current funding for climate risk startups may seem modest compared to the scale of the problem

The Key To America’s AI Supremacy: Harnessing Global Talent (Crunchbase, 5 minute read)

The American artificial intelligence (AI) industry is largely driven by immigrants, with many key figures and founders being immigrants themselves. This trend extends to unicorn companies, where 80% were founded by immigrants or have immigrants in key roles

To maintain its position in AI innovation and national security, the U.S. must continue to attract global talent
MPower Financing, a student loan financier, has seen a significant increase in applications from Indian students for AI and machine learning studies in the U.S., highlighting the appeal of American education and the contribution of international students to the tech ecosystem

LPs warm back up to crypto as bitcoin rallies (Pitchbook, 4 minute read)

Cryptocurrency-focused general partners (GPs) are reentering the limited partner (LP) fundraising market, encouraged by a bitcoin rally and the SEC's approval of bitcoin exchange-traded funds. However, accessing institutional LPs remains challenging due to crypto VC's reputation for volatility and unpredictability

Pantera Capital is targeting $1.25 billion for a fund investing in early-stage tokens, liquid tokens, and startup equity. FTX investor Paradigm is in talks to raise $750 million to $850 million for its next vehicle
Several prominent institutional LPs suffered losses in the last crypto wave
Despite these challenges, regulatory approvals, such as the SEC's approval of bitcoin ETFs, have provided greater certainty and optimism for crypto GPs

ECONOMIC SNAPSHOT

Interest Rate Forecasts for Advanced Economies (Visual Capitalist, 4 minute read)

While U.S. inflation cooled in the second half of last year, price pressures returned in 2024, leading investors to rethink how soon central bankers will cut rates. Despite the recent increase, the interest rate forecast for many economies looks optimistic, thanks to subdued energy price shocks and abating supply chain disruptions. Still, short-term risks remain, including persistently high services inflation clouding the outlook

The U.S. is forecast to see its first rate cut in the second quarter of 2024, with rates expected to fall gradually. By 2027, interest rates are projected to reach 2.9% as inflation subsides
The European Central Bank is expected to cut rates in the second quarter of 2024, with rates potentially falling to 2.6% by 2026
Japan, after years of negative interest rates, raised its short-term policy rate to 0.0-0.1% in March 2024, reflecting an improving inflation outlook

US Federal Reserve holds interest rates steady as inflation ticks up (The Guardian, 4 minute read)

The Federal Reserve decided on May 1st to maintain interest rates at 5.25% to 5.5%, their highest level in two decades, due to ongoing concerns about inflation. Despite hopes for rate cuts, inflation has remained above the Fed's 2% target, fluctuating between 2% and 4% over the past several months

While there was a slight decrease in inflation in January, it rose again in February and March, reaching 3.5% in March
Inflation peaked at 9.1% in June 2022, but has since fallen. However, President Joe Biden stated that prices for housing and groceries remain high, although some household items are cheaper than a year ago
Earlier expectations of rate cuts have diminished, with Powell stating that it is likely to take longer than expected to gain confidence in lowering inflation

Fight Against Inflation, Market Correction At Heart Of VC Slowdown (Forbes, 5 minute read)

The first quarter of 2024 saw a significant slowdown in venture capital funding, hitting a 7-year low. The fintech sector, in particular, experienced a 16% decrease in funding quarter-over-quarter, influenced by factors such as high interest rates, increased cost of capital, and geopolitical tensions. However, despite the overall dip in investment, generative AI and robotics sectors saw gains

The US economy, though showing signs of growth with low unemployment and rising wages, is facing unpredictability on the macro horizon, leading to cautious investor sentiment, reflected in lower risk return on investment, impacting VC fundraising
Mega-rounds continued to be a bright spot, growing 30% QoQ, but mostly consolidating with the largest managers and funds. This trend suggests private market consolidation rather than overall buoyancy

IMPACT & CLIMATE RESILIENCE

VCs Are ‘Knowledge Gatekeeping,’ And It’s Holding Back Diversity (Crunchbase, 4 minute read)

Venture capital (VC) continues to struggle with diversity and inclusion, with Black investors comprising only 4% of VCs in the U.S. and women representing just 15% of general partners in Europe. Affinity bias, where people tend to hire and back those who are similar to them, perpetuates this lack of diversity, leading to all-male, all-white teams being more likely to attract funding

Knowledge gatekeeping in VC, including the use of jargon and exclusive networks, further exacerbates the issue
Limited access to VC education and exclusive deal-making spaces hinder aspiring investors, particularly those from overlooked backgrounds, from breaking into the industry

What 20 Years Of Angel Investing Taught Us About Driving Progress For Women Entrepreneurs (Crunchbase, 5 minute read)

Over the past two decades, there has been a significant transformation in angel investing, with women now representing 40% of angel investors and 31% of angel-funded companies, compared to just 5% and 3% respectively twenty years ago. This shift reflects broader societal and business changes

Despite this progress, there is still a major disconnect in venture capital, with more than 80% of VC-funded deals in 2023 going to all-male teams
When a VC firm includes at least one woman partner, the likelihood of a woman entrepreneur being funded increases by 2x to 3x. Yet, women constitute less than 20% of decision-makers in U.S. VC firms
McKinsey reported that companies with gender-diverse executive teams are 39% more likely to achieve financial outperformance

IPO & EXITS

Despite recent successes, IPO market still won’t fully open until 2025 (Techcrunch, 4 minute read)

Despite recent successful IPOs, experts don't anticipate a flood of tech IPOs this year. Concerns linger due to IPO performance post-launch, with companies like Klaviyo and Instacart trading below their initial IPO prices. While some expected IPO activity to rebound in 2024, the consensus now leans towards a slower resurgence, potentially in the second half of the year

The timing, especially considering the upcoming election, also adds pressure, as companies would be rushed to complete their S-1 filings
Economic uncertainty, including stagnant interest rates and lingering recession fears, further dampen confidence
Many in the market, including venture funds and analysts, suggest waiting until 2025 for a more favorable IPO environment

In Sectors From Diagnostics To Spacetech, More Struggling SPACs Are Going Private (Crunchbase, 4 minute read)

Some companies that went public via SPACs during the peak of the last boom have faced significant challenges, with their valuations plummeting and share prices falling to penny-stock territory. In response, a growing number of these companies are choosing to exit public markets and return to being private, which may also offer the potential for upside at current valuation levels

23andMe, a genetic testing provider, recently announced plans for its CEO and founder, Anne Wojcicki, to acquire all outstanding shares she does not currently own, following years of poor performance on Nasdaq
While these companies' post-IPO performance may not be considered successful, going private can be a viable option for founders and early backers, especially when shares are trading at low levels

AI8 VENTURES HIGHLIGHT

AlphaInsights: Venture Capital Report 2023

Alpha Impact 8 Ventures is thrilled to share our latest insights into the dynamic world of investments with our 2023 Venture Capital Report, here’s an updated version with 2024 commentary that dives into the ever-evolving landscape of financial markets.

Just a few months ago, Michael Burry, the legendary fund manager who famously profited from shorting the US housing market in 2008, bet more than $1.6 billion on a Wall Street crash by shorting the S&P 500 and Nasdaq-100. Warren Buffett’s money pile reached record highs of $157 billion as Berkshire Hathaway disposed of a net $33 billion of stocks over the past three quarters. Is there something Buffett and Burry know that the rest of us don’t?

Read Full Report

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Happy reading,

AI8 Ventures’ Research & Investment Team

Here to save the World: the rise of climate tech