Has funding hit rock bottom?
Week of April 15th, 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: Cyera And Monad Labs Raise Massive Rounds In Big Week (5 minute read)
Cyera (cybersecurity): raised $300 million in a Series C led by Coatue at a $1.4 billion valuation. The New York-based startup offers a platform that helps security teams understand and secure their data, particularly important as companies rely on data for AI initiatives
Monad Lab (blockchain): raised $225 million in a funding round led by Paradigm. The New York-based company is a layer-1 blockchain compatible with Ethereum Virtual Machine but faster in processing transactions
Torl BioTherapeutics (biotech): closed a B-2 financing round at $158 million led by Deep Track Capital. The Los Angeles-based biopharmaceutical company focuses on developing novel, antibody-based therapeutics to fight cancer
Guesty (hospitality): raised $130 million in a Series F led by KKR India Asset Finance. The California-based startup provides property management software for short-term rentals
Platform Science (transportation): secured $125 million in funding, with investors including Daimler Trucks and RyderVentures. The San Diego-based startup offers an edge application platform for transportation fleets
Crypto Dominates And The First Unicorn From Uzbekistan Joins The Board In March 2024 (Crunchbase, 5 minute read)
In March 2024, 11 new companies joined The Crunchbase Unicorn Board, with a surprise lead from the cryptocurrency and Web3 sector, adding three new unicorns
The first company from Uzbekistan, Uzum, joined the board, focusing on e-commerce and payments
Four of the new unicorns are U.S.-based, including IntraBio, which relocated to the U.S. after its latest funding. Other new unicorns hail from Czechoslovakia, the Cayman Islands, Singapore, China, India, and Australia
Many new unicorns were valued at over $1 billion despite raising less than $100 million, suggesting smaller ownership stakes
Venture Monitor Q1 2024 (Pitchbook, 15 minute read)
In the first quarter of 2024, the US venture capital community did not experience the typical seasonal rise in activity, with $36.6 billion invested across 3,925 deals, similar to the past year. However, this shouldn't be overemphasized as the VC business cycle has reset in recent years and is still finding its level
The US VC-backed company count now sits above 55,000 companies, highlighting competition for capital in a market 2 years into a slowdown
While the S&P was positive across the quarter, the performance of Pitchbook’s IPO Index was less than stellar: it remains down more than 40% since the beginning of 2022, due to the riskiness that VC-backed companies present to the market
In Q1 2024, dealmaking in the US venture capital market continued to slow, with deal value dipping QoQ but remaining similar to Q3 2023. The capital demand/supply model indicates a significant gap, with only $1.00 provided for every $2.20 needed by startups at growth stage
The aggregate unicorn valuation has exceeded $2.4 trillion, with 731 companies holding this title. However, few exits have been achieved, leaving the market with high values and limited options
Slow pace of distributions in VC is stifling fundraising activity (Pitchbook, 4 minute read)
The venture ecosystem is experiencing a slowdown primarily due to a lack of exits, especially large tech public listings. In the first quarter of 2024, US VC exit value was just $18.4 billion, with the IPOs of Reddit and Astera Labs accounting for approximately three-fourths of that total. However, it is still early to determine if these IPOs signal a near-term increase in public listings
The lackluster exit market over the past two years has made it challenging for many GPs to convert paper gains into cash distributions to limited partners LPs, leading to liquidity constraints for many institutional investors amid a prolonged market correction
Fundraising activity has also slowed, with only $9.3 billion in commitments secured across 100 venture funds
Many VCs have delayed their next fundraising timeline, focusing on their existing portfolios and being selective with new deals
With a need for liquidity, a convergence on pricing from founders and investors, and increased interest from strategic buyers and PE firms, an uptick in acquisitions is expected in the coming quarters
INDUSTRY
After Bitcoin Surge, Crypto VC Creeps Toward a Comeback (Bloomberg, 5 minute read)
Venture capital investment in crypto startups rebounded in the first quarter of 2024, increasing by nearly one-third from the previous quarter. VCs are focused on backing startups that can build better crypto infrastructure and make the industry more appealing to investors, as crypto is still considered to be in its early stages of development
VC investment reached $2.5 billion, a 32% increase, and roughly in line with the same period last year
The renewed enthusiasm for crypto is attributed in part to the approval of Bitcoin exchange-traded funds in January and interest in the intersection of crypto and artificial intelligence
Venture firms are also launching new digital asset funds, indicating a growing interest in the sector
Funding activity has picked up in recent months, with some founders who experienced setbacks in the last cycle now raising money again
AI Venture Funding May Be Hot, But M&A Remains Slow (Crunchbase, 5 minute read)
Investors are showing significant interest in AI, with venture funding surpassing $50 billion last year. Public market investors are also active, with Nvidia and Apple competing for market value. However, M&A remains the most common exit path for AI startups
Despite the hype, AI M&A dealmaking declined by 31% in 2023 compared to 2022, this trend continued in Q4, with only 39 deals announced, the slowest pace since Q1 2019
While 2023 saw some significant AI M&A deals, including Databricks' acquisition of MosaicML for $1.3 billion, overall dealmaking stagnated
Deal activity in 2024 seems to be picking up, with 43 deals in Q1, potentially making it the most active quarter in at least a year. However, investors are cautious about high valuations and competition from established tech players like Google and Microsoft
Investors are growing increasingly wary of AI (Techcrunch, 5 minute read)
The AI industry is experiencing a significant slowdown in investment, with global funding falling for the second consecutive year in 2023. Both private investment in startups and corporate investment in AI-related mergers and acquisitions declined, totaling $189.2 billion last year, a 20% decrease from 2022. Despite this, some AI ventures continue to attract substantial investments
The decline in AI investment is attributed to various factors, including a more mature and discerning investment landscape, slower-than-expected growth, and a recognition of the challenges involved in scaling AI technologies
Generative AI, however, remains a bright spot, with funding reaching $25.2 billion in 2023, nearly nine times the investment in 2022
Overall, the AI industry is undergoing a necessary correction from the bubble-like investment fervor of previous years. The industry is expected to move to a more sustainable and normalized pace in 2024, with stable investment rhythms and sustained growth anticipated
INDUSTRY WORLDWIDE
Latin American Startup Investment Fell Further In Q1, Though Colombia Posted Big Gains (Crunchbase, 5 minute read)
In the first quarter of 2024, funding to Latin American startups hit its lowest level in years, with a total investment of $579 million across seed-through growth-stage rounds. This represents a decline of 17% from the previous year and a drop of 39% from the prior quarter
This decline marks a significant comedown from the region's funding peak nearly three years ago when over $7 billion was invested in a single quarter
Despite the overall decline, some good-sized deals were completed, particularly in the fintech space, including Simetrik (Colombia), Bold (Colombia), Conta Simples (Brazil), and Pomelo (Argentina)
Colombia saw a significant increase in investment, more than tripling from the prior quarter
Brazilian startups’ funding was down 63% from the prior quarter while mexican startups’ funding fell 82% QoQ
Asia Venture Funding Continues to Struggle, Hits Lowest Level Since 2016 (Crunchbase, 5 minute read)
In the first quarter of 2024, venture funding in the Asia region experienced a decline, reaching $17.3 billion, marking the lowest amount since Q4 2016. Deal volume also dropped significantly, with only 1,615 deals announced, down 22% from Q1 2023
Late-stage and growth rounds saw a substantial decrease, totaling only $5.5 billion, the lowest since Q3 2014. However, early-stage funding showed progress, reaching $10.2 billion, up 51% from the previous quarter
China dominated the region's venture scene, with startups raising $1.1 billion in Q1, up 9% from the previous quarter
Political tensions between China and the U.S. do not seem to be significantly impacting China's private market. as Asia is benefiting from the global AI craze, with more than $3 billion in venture funding going to AI startups, up 52% from Q4 2023 and 349% from Q1 2023
European Venture Spending Settles Around $12B In Q1 As Early-Stage Investment Holds Steady (Crunchbase, 5 minute read)
In the first quarter of 2024, venture funding to European startups reached $11.8 billion, showing a marginal increase from the previous quarter and a decrease of less than 10% from the same period in 2023
The leading sectors for funding were financial services, healthcare, and energy. AI companies raised $1.4 billion, representing about 12% of European venture capital
The U.K. was the largest recipient of venture funding in Europe, followed by Germany and France
Late-stage investments totaled $4.6 billion, with London-based digital bank Monzo raising the largest funding round, while early-stage funding reached $5.4 billion invested in more than 300 European startups and Seed-stage startups raised $1.7 billion
ECONOMIC SNAPSHOT
Consumer prices rose 3.5% from a year ago in March, more than expected (CNBC, 5 minute read)
The Consumer Price Index (CPI) in the US accelerated at a faster-than-expected pace in March, rising 0.4% for the month and putting the 12-month inflation rate at 3.5%, which is 0.3 percentage points higher than in February
Excluding volatile food and energy components, the core CPI also accelerated 0.4% on a monthly basis, rising 3.8% from a year ago, compared with respective estimates for 0.3% and 3.7%
The increasing inflation was also concerning for workers, as real average hourly earnings were flat on the month and increased just 0.6% over the past year
Multiple Fed officials have expressed skepticism about lowering rates, with some even suggesting that an increase may be necessary if the data does not cooperate
IMPACT & CLIMATE RESILIENCE
How Can VCs Create Community At A Time Of Division? (Crunchbase, 5 minute read)
The current social divisions are affecting marginalized communities, immigrants, and refugees, making their challenges as entrepreneurs even greater. VCs have significant power in shaping the fate of founders and should use this power to create a community that goes beyond their firm or company:
Promote inclusiveness in the startup world by setting up accelerators or training programs for marginalized communities, as well as offering support and resources to immigrant entrepreneurs
Leverage their resources to support startups by sharing services such as PR or graphic design with their portfolio companies, helping them increase their media presence and reach
Unite experts with shared experiences to create a structured community that offers support and guidance to founders, may include successful entrepreneurs, academics, stakeholders, and other VCs
How consultants are helping GPs drive ESG (Preqin, 10 minute read)
Consultants are playing a crucial role in helping private capital firms navigate their ESG (Environmental, Social, and Governance) journeys. As ESG regulations evolve and LPs demand greater ESG integration, consultants are supporting GPs in key ways...
To identify and prioritize ESG issues that are most likely to impact a company's financial condition or operating performance, such as environmental impact, social capital and human capital
To integrate ESG at Multiple Levels, this involves embedding ESG across the investment lifecycle to drive value, avoid downside risk, and meet the expectations of LPs
To everage new technologies, such as AI, for ESG data collection and analysis, helping bridge ESG data gaps and provide insights into the relationships between financial and non-financial data
The Largest Gender Pay Gaps in OECD Countries (Visual Capitalist, 4 minute read)
While the Organization for Economic Cooperation and Development includes 38 member countries who all share a commitment to democracy and economic development, many of them still have significant gender pay gaps between men and women. These disparities are attributed to entrenched workplace systems and cultural norms that hinder women's advancement in senior roles and pay
South Korea has the largest gap at 31.2%, far exceeding the OECD average of 11.6%
Other countries with notable gaps include Israel (25.4%), Latvia (24.9%), Japan (21.3%), Cyprus (20.8%), and Estonia (20.5%)
As for North America, Canada’s gap is the worst among the group (17.1%), closely followed by the U.S. (17.0%), and Mexico (16.7%)
IPO & EXITS
Investors see a test for loss-making startups in Rubrik’s IPO (Pitchbook, 4 minute read)
Rubrik's upcoming IPO presents a test for investors regarding the traditional emphasis on growth over profitability. Despite generating $627.9 million in revenue in the fiscal year ended Jan. 31, 2024, the Bay Area startup's losses widened to $354.2 million. This mirrors recent IPOs like Astera Labs and Reddit, which are also unprofitable, albeit with narrowing losses
Cybersecurity remains a top vertical for expected returns, but the sector's exit value dropped from over $30 billion in 2021 to less than $7.5 billion in 2022 and 2023 combined
Investors are watching the IPO closely to gauge its impact on their portfolios. Depending on its reception, other companies may speed up their IPO plans
Rubrik's valuation will also be a signal for the broader market, as it was valued at $3.3 billion in 2019
Ready to launch: US stock markets are poised for a strong 2024 (White & Case, 4 minute read)
Despite challenges such as high interest rates and geopolitical uncertainty in regions like the Middle East and Ukraine, the US IPO market showed signs of improvement last year compared to the difficult year of 2022
US IPO proceeds, including SPACs, reached $23.94 billion in 2023, up slightly from $8.6 billion in 2022. However, the number of IPOs decreased from 180 in 2022 to 154 in 2023
Although the improvement in IPO proceeds in 2023 is a positive sign, they are still significantly lower than the $316.63 billion peak in 2021 and less than half of the $62.56 billion in 2019
The technology sector, especially companies with AI applications, is expected to remain attractive to investors 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?
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
