Week of April 22nd, 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: Metsera And Rivos Headline A Slow Week (Crunchbase, 5 minute read)

Metsera (biotech): The New York-based clinical-stage biopharmaceutical startup raised $290M, the company focuses on medicines for obesity and metabolic diseases received funding led by Arch Venture Partners
Rivos(semiconductor): Santa Clara-based chip startup developing power-optimized chips for data analytics and generative AI markets received funding led by Matrix Capital Management. The company raised $250M
Ramp (fintech): The New York-based raised $150M, the spend management startup raised a round led by Khosla Ventures and Founders Fund, increasing its valuation to $7.65 billion
Two Chairs (healthcare): San Francisco-based behavioral health startup providing a matching platform for therapists and patients raised a Series C round of $72M
Cape (mobile): Arlington-based company developing a privacy-first mobile network raised $61M funding led by A* and Andreessen Horowitz

The Shrinking Series E: More Senior Startups Raise Smaller Follow-On Rounds (Crunchbase, 4 minute read)

In recent times, some venture-backed startups are securing smaller follow-on investment rounds than expected, contrary to the typical trend of increasing size with each round. This trend is more pronounced for companies that previously raised capital in a more exuberant investment climate

An analysis of 15 American companies raising Series E or Series F rounds in 2024 found that over half of them raised less in their latest round compared to their prior one
While a smaller round might not be seen as a bullish sign, it also doesn't necessarily indicate a negative outlook: it suggests that while companies are scaling back, investors still have confidence in their potential for success
Overall, average round sizes and valuations have decreased significantly since the market peak, reflecting a more cautious investment environment
American companies raised $2.1 billion in Series E and Series F rounds this year, compared to roughly six times that amount during the same period last year

The US has more startups than VCs can support (Pitchbook, 4 minute read)

Over 55,000 VC-backed companies are competing for funding in a slow dealmaking landscape in the US, 2,000 VC firms stopped making new investments in startups in the first nine months of 2023 and 3,200 startups failed. All these drive us to one conclusion: the US has too many startups

Late-stage and venture-growth firms need more capital tha investors provide. LPs' retreat from venture made GPs more cautious and VCs do more due diligence, to the pint where firms now require cash flow break-even earlier and prioritize profitability
Pre-seed and seed-stage startups are expected to raise an amount similar to that in 2018, across a little over 3,000 VC deals, smaller funds are more cautious in a tough market and have less flexibility for follow-on financing rounds
In 2023, due to a slower market, many founders had to accept less favourable financing terms, leading to an increase in companies going out of business
This is making founders consider acquisition offers earlier: 90% of the acquisitions of US VC-backed companies in Q1’23 took place before or just after the company's Series B funding round, compared to less than 85% in 2021

VC fund returns uptick signals sunnier skies in 2024 (Pitchbook, 4 minute read)

US venture fund returns have been negative but are showing signs of improvement, with a one-year rolling internal rate of return (IRR) increasing from a low of -17.9% in Q4 2022 to -9.1% in Q2 2023. This trend is seen as hopeful amid a struggling fundraising market and portfolio markdowns

Late-stage and growth-stage venture firms were particularly impacted by the downturn in valuations of comparable public companies in 2022
While there hasn't been a broad-based rebound, certain sectors like AI and anticipation of interest rate cuts have driven recent gains
Cash distributions to LPs have lagged contributions, resulting in a net cash flow deficit of -$54.8 billion from 2022 through H1 2023
Venture capitalists typically adjust portfolio company valuations based on revenue multiples of comparable public companies, but there's a lag in fund reporting, delaying the impact of recent stock market performance on VC fund marks

INDUSTRY

Cybersecurity Funding Shows Resilience In Q1 (Crunchbase, 5 minute read)

Cybersecurity startups raised nearly $2.7 billion across 154 deals, marking the sector's best performance in the past three quarters. Notable funding rounds included Quantinuum, NinjaOne, and Axonius, with investments ranging from $200 million to $300 million

Although the funding is a decrease from the 2021 peak, it shows a strong rebound from the previous quarter's lower figures
The funding uplift is not merely due to AI integration but reflects broader interest in cybersecurity solutions across various industries
Early signs suggest continued interest in cybersecurity investments into the second quarter of 2024

Investors Re-Engage With Gaming Startups (Crunchbase, 5 minute read)

Gaming startups saw $265 million in early-stage funding, a significant rise from previous quarters. Prominent investors like Andreessen Horowitz and Bitkraft Ventures contributed to the sector's growth with substantial new funds

Notable investments include $110 million for Build A Rocket Boy and $100 million for Second Dinner Studios
The sector shows recovery signs, contrasting with previous slowdowns in pandemic-boosted sectors
The environment looks favorable for both continued investment and potential startup exits

ECONOMIC SNAPSHOT

Here’s what would happen to the US economy if there are no rate cuts this year (CNN, 5 minute read)

Federal Reserve officials have indicated that they need more convincing data showing inflation is sustainably at 2% before considering rate cuts. The recent hot Consumer Price Index report has led Fed Chair Powell to suggest that rate cuts are unlikely in the near future

Investors had initially expected three rate cuts last year, which led to market highs. However, the expectation for rate cuts has been pushed back due to stalled progress on inflation
Stock markets reacted negatively to Powell's indication that rates would stay higher for longer, with major indexes shedding around 2% of their value
The longer the Fed leaves interest rates higher, the more pain could be inflicted on households and businesses, as higher rates tend to cause people to save rather than spend or invest

US dollar’s extended reign delivers stark wake-up call for markets (Bloomberg, 4 minute read)

The world's financial markets are facing an unexpected challenge in 2024: a strong dollar. Initially predicted to decline, the dollar has instead strengthened due to the robust US economy and persistent inflation, which have caused the Federal Reserve to postpone interest rate cuts

Bloomberg dollar index has gained more than 4% this year, reflecting advances against all major developed and emerging-market counterparts, leading to talk of "US exceptionalism" and supporting stocks, bond yields, and the dollar's appeal as a safe haven currency
Investors and institutions like Vanguard, UBS Asset Management, and Wells Fargo are adjusting their strategies to account for the dollar's sustained strength
The Federal Reserve's decision to hold off on rate cuts has led to a surge in Treasury yields, making US debt more attractive to global investors
Meanwhile, other central banks like the ECB and the Bank of Japan may be considering rate cuts, further boosting the dollar's appeal

IMPACT & CLIMATE RESILIENCE

The Extra Hurdles Pattern-Breaking Founders Face With The VC Industry (Forbes, 5 minute read)

In 2024, the venture capital landscape presents challenges for non-pattern-matching founders, who face increased scrutiny and competition. The market deceleration in 2023, marked by declining deal counts and values, has left little room for error

Female and minority founders, in particular, are facing difficulties in securing meetings and raising capital compared to their counterparts
All-female teams and teams with minority members are booking 51% fewer meetings than before, and VCs spent 19% less time reviewing pitch decks in 2023 compared to the previous year at the pre-seed stage
VCs spent 48% and 25% more time on business model and traction sections in 2023 than they did a year before, respectively
Persistence and resilience are key, as seen in the success stories of founders who faced rejection but persevered
Finding VCs who understand and appreciate their background can also be beneficial, as these connections can lead to investment opportunities

How mitigating and adapting to climate change can create investment opportunity (Bloomberg, 5 minute read)

The transition to a low-carbon, climate-resilient economy is gaining traction as a critical aspect of business strategy, driven by concerns from bodies like the UN and IPCC regarding the world's progress towards net zero by 2050

The financial sector is increasingly involved, driven by evolving disclosure and regulatory requirements, making climate change mitigation and adaptation a major investment trend
Investment in low-carbon transition technologies exceeded $1 trillion USD in 2022, reflecting growing interest in transition and physical risk analytics
Companies are developing robust transition plans to decarbonize their operations, considering climate risks and opportunities across their value chains

IPO & EXITS

Year of the IPO Window or Vent? (Pitchbook, 20 minute read)

In 2024, the IPO market is not expected to fully open due to lingering low valuations, leading to a more cautious "IPO vent" scenario with a few listings testing the waters. Market volatility reached low levels by the end of 2023, but valuations remain below favorable thresholds for increased activity

Despite the market conditions, a high number of VC-backed companies is showing a high probability of going public, particularly in biotech & pharma and fintech
In Europe, there are 300 companies likely to exit via IPO as of April 9, 2024, with 32.0% in the biotech & pharma sector
In recent years, there has been a trend of startups choosing to list in the US for potentially higher valuations and better financing opportunities
Five key factors, including interest rates, valuations, and company profitability, politics and geopolitics and profitability will be crucial for transitioning from an IPO vent to an open IPO window in 2024

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

Alpha Impact 8 Ventures is disrupting the industry, generating wealth, creating technology, providing access, leveling the play field, reducing systemic barriers, and building a resilient world.

Become part of the our revolution.

Happy reading,

AI8 Ventures’ Research & Investment Team

Does the Dollar Still Reign Supreme?