AI Valuations are Breaking Records ??????

Week of December 2nd, 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

5 New Unicorns Join The Board And 5 Exit In October (5 minute read)

In October 2024, five new unicorns spanning AI, energy, robotics, fintech, and professional services joined the Crunchbase Unicorn Board, adding over $7 billion in value and bringing the board’s total to 1,550 companies valued at $5.3 trillion. Four of these companies are based in the Bay Area, while Moniepoint, a London-headquartered fintech firm, operates primarily in Africa

• Despite five companies exiting the board with a combined valuation of $12.5 billion—higher than the value added by the new entrants—the board's overall value grew significantly due to OpenAI's $6.6 billion funding round, which boosted its valuation from $80 billion to $157 billion
• This year has seen 32 exits (16 public listings and 16 acquisitions), surpassing 2023’s total of 25 exits. Notable October exits included China-based Horizon Robotics and WeRide
• October's Newly Minted Unicorns: Poolside (USA, AI, $3 billion value), Pacific Fusion (USA, Energy, raising $900 million), EvenUp (USA, Professional services, $1 billion value), Moniepoint (UK, fintech, $1 billion value), Nimble Robotics (USA, robotics, $1 billion value)

INDUSTRY

These Smaller State Startup Scenes Saw Big Gains In 2024 (5 minute read)

In 2024, while most U.S. states are seeing a decline in startup funding, smaller markets like Arkansas, Vermont, and Hawaii are experiencing notable gains. Arkansas saw a nearly 50% increase, reaching $175 million, with Bentonville emerging as a key hub. Vermont’s standout deal was Beta Technologies’ $318 million Series C, which accounted for over 90% of the state’s funding, while Hawaii’s $57 million investment in Steve Wozniak’s space-tracking startup, Privateer, dominated its totals

• Oregon also had a strong year, with funding up 77% to over $600 million, driven by Serán Bioscience’s $200 million+ round and Agility Robotics’ $150 million commitment for humanoid robots
• While these gains suggest emerging startup ecosystems, the volatility of smaller markets — often driven by a few large deals — underscores the need for sustained growth
• Conversely, states like Missouri, Nevada, and Alabama have seen sharp declines, highlighting challenges in regaining investor interest

Poor Valuation Practices Have Slowed Innovation (5 minute read)

Professional investing relies on understanding the value of assets and their potential for appreciation. Historically, this insight was the competitive advantage of VC firms, enabling them to identify opportunities in emerging sectors like online marketplaces in 1997, the space industry in 2002, and crypto in 2012. However, the past decade’s SaaS investment boom has distorted VC practices, prioritizing rapid scalability over fundamental innovation. This shift led to the dominance of ARR multiples for valuations, encouraging quick deal closures at the expense of financial discipline

• The SaaS model, with its ability to fuel growth through online advertising, created a "virtuous loop" that incentivized raising and deploying capital quickly, transforming the industry into one focused on short-term gains
• Consequently, deep tech startups, which require years of R&D before generating revenue, have become less attractive to VCs despite their long-term value potential
• Restoring discipline and adopting more nuanced valuation approaches could help realign the industry

Early-stage VC valuations were at or near new highs in Q3 (4 minute read)

Early-stage startup valuations are soaring, with median seed valuations hitting a record $14.8 million in Q3 2024, and Series A valuations reaching $45 million, the highest since early 2022. Median deal sizes have also grown, with seed rounds averaging $3.8 million and Series A rounds $11 million, the highest in two years

• While investor enthusiasm, particularly in sectors like AI, has driven valuations upward, deal counts have declined—seed deals are down 28% year-over-year, and Series A deals are down 8%
• Later-stage activity shows a mixed picture, with Series B deals up 23% year-over-year and Series D deals surging 72%
• This rebound comes as the Federal Reserve’s recent rate cuts have made venture capital more attractive

Crypto VCs line up to ride Trump bitcoin boom (4 minute read)

Bitcoin’s surge to all-time highs post-U.S. presidential election has sparked optimism for crypto markets, but the outlook for crypto VC remains uncertain. Crypto VC investment fell 31.1% quarter-over-quarter to $1.7 billion in Q3, hindered by high interest rates and unclear U.S. regulations. Expectations for President-elect Donald Trump’s administration include regulatory reforms that could address tax policies, token registration, and clearer oversight, potentially boosting institutional adoption and startup valuations

• Chris Perkins of CoinFund highlights “regulatory derisking” as crucial for attracting Wall Street investment, which could fuel growth in blockchain gaming, AI-driven crypto startups, and payment processors bridging fiat and crypto
• Innovations in decentralized data, fixed-income crypto trading, and blockchain-based businesses are also expected to thrive under clearer regulations, fostering a new era for the U.S. crypto ecosystem

INDUSTRY INTERNATIONAL

Hong Kong follows US to propose crypto tax breaks (4 minute read)

Hong Kong aims to solidify its position as Asia's leading crypto hub by proposing a tax exemption for private market investors' cryptocurrency trading gains, subject to a six-month consultation. This initiative aligns with global pro-crypto sentiment, buoyed by U.S. President-elect Donald Trump's proposed elimination of capital gains taxes on U.S.-issued cryptocurrencies

• While VC funding for Hong Kong crypto startups has risen 40% this year, reaching $304 million across 46 deals, it still trails Singapore’s $746.6 million across 181 deals
• To compete, Hong Kong introduced Asia’s first spot bitcoin and ether ETFs in April, enabling retail investors to trade cryptocurrencies at spot prices
• Meanwhile, South Korea's crypto funding plummeted to $42.7 million in 2024 from a $429.3 million peak in 2022

?? ECONOMIC SNAPSHOT

US economy grows at 2.8% pace in third quarter on consumer spending, unchanged from first estimate (5 minute read)

The U.S. economy grew at a steady 2.8% annual rate in the third quarter, supported by strong consumer spending and a surge in exports, maintaining earlier estimates. While slightly slower than the 3% growth in the second quarter, this marks durable growth, exceeding 2% in eight of the last nine quarters. Consumer spending, accounting for 70% of economic activity, rose by 3.5%, its fastest pace in nearly a year, and exports grew by 7.5%

• Core economic strength, which excludes volatile items like exports, climbed 3.2% annually, up from 2.7% in the prior quarter
• Inflation continues to cool, with the Fed's preferred measure rising only 1.5% last quarter, the slowest in two years
• Core inflation dropped to 2.1%, close to the Fed’s 2% target
• Despite low unemployment (4.1%) and easing inflation (2.6%), prices remain 20% higher than early 2021, fueling public frustration

What are tariffs and why is Trump levying them on Canada, Mexico and China? (5 minute read)

Donald Trump has announced plans to impose tariffs of 25% on imports from Canada and Mexico and 10% on imports from China, citing issues like drugs and migration. These tariffs, targeting the U.S.’s largest trading partners, are expected to increase consumer prices and inflation, with economists estimating household costs could rise by $1,900 to $7,600 annually. While Trump claims tariffs incentivize domestic manufacturing, experts note that shifting production from global supply chains to the U.S. is a lengthy process, unlikely to materialize within a presidential term

• Businesses typically pass tariff costs to consumers, with industries like electronics, autos, and crude oil particularly affected
• Countries impacted by tariffs are expected to retaliate. For example, past tariffs on Chinese goods led to Chinese tariffs on U.S. exports, severely affecting American farmers and prompting a $10 billion bailout
• Mexico and China have indicated potential retaliatory measures, emphasizing that trade wars harm all parties

S&P 500 Clocks Best Month of the Year; Yields Drop: Markets Wrap (4 minute read)

US stocks ended a shortened trading session higher, with the S&P 500 rising 0.6% and marking fresh record highs. Treasury yields declined, and the Bloomberg Dollar Spot Index fell over 1% for the week, snapping eight consecutive weeks of gains. Optimism about President-elect Trump's Treasury secretary pick, signaling a less extreme trade policy, boosted US stocks and bonds while weakening the dollar

• The S&P 500 rose 5.7% in November, its best month this year, fueled by $141 billion in inflows into US equities
• Meanwhile, global investor sentiment shows a stark contrast, with bullishness in US assets and bearishness on others, particularly European stocks, which are underperforming
• In Europe, inflation exceeded the ECB’s target, but not enough to disrupt their rate-cutting plans. The yen briefly weakened but later gained, driven by inflation data and expectations of a rate hike from the Bank of Japan

???? Impact & Climate Resilience

Charted: Top Countries Sending Immigrants to the EU (5 minute read)

In 2023, a record 3.7 million first-time EU residence permits were issued, the highest since data collection began in 2013. Ukrainians have consistently been the largest group moving to the EU, with 307,000 permits issued in 2023, which is lower than the peak in 2015. Other major sources of migration include Morocco, Belarus, and Russia, with Belarus (281,000) and Russia (116,000) seeing significant numbers

• Asia also saw increased migration to the EU, particularly from India, which rose from 7th in 2013 to 3rd in 2023
• Meanwhile, countries experiencing civil wars, like Syria and Afghanistan, saw rising numbers of residents moving to the EU due to deteriorating living conditions
• The increase in migration is contributing to population declines in some source countries, notably Ukraine, which had 28% fewer people in 2023 compared to 1990

Climate VCs are cautiously optimistic about a second Trump term — here’s why (4 minute read)

Despite President-elect Donald Trump’s skepticism toward aggressive climate action, his policies could offer mixed outcomes for climate tech. While deregulation and support for oil and gas may challenge sectors like wind energy, they could benefit geothermal energy, geologic hydrogen, and grid-related innovations. Investors remain cautiously optimistic, noting that past advancements in climate tech occurred during his first term

• Lessons from earlier clean tech failures have shifted focus to startups delivering clear customer value without relying on subsidies
• Emerging technologies like small modular reactors and geothermal energy are poised to benefit, especially with surging AI infrastructure needs
• However, sectors dependent on tax credits and federal support may face difficulties, and climate-focused VCs could encounter reduced investor interest

?? IPO & Exits

India, already an IPO bright spot, prepares for bigger surge in 2025 (4 minute read)

India has emerged as a rare bright spot for IPOs in 2024, bucking global trends as other major markets face headwinds. Over 20 startups are preparing to list in 2025, including notable names like Inframarket and OfBusiness. This momentum builds on the 12 startup IPOs in 2024, including Swiggy's $1.35 billion listing—the largest global tech IPO this year. India's IPO market contrasts sharply with other regions

• The U.S. saw only 22 venture-backed tech IPOs this year, nearly flat compared to 2023, while China’s tech IPO count dropped from 117 in 2022 to 56 in 2024
• Analysts attribute India’s strength to macroeconomic growth, increased liquidity (tripling since 2019), political stability, and a thriving innovation ecosystem
• India’s market capitalization has doubled since 2019, reaching $5.3 trillion, with daily liquidity rising from $5 billion to $15 billion
• With tech and healthcare representing less than 20% of India’s benchmark Nifty 50, compared to over 50% in the S&P 500, analysts see significant room for growth in India's tech IPO market

Fintech unicorns are watching Klarna’s debut for signs of when IPO window will reopen (5 minute read)

After Klarna filed for a U.S. IPO, fintech unicorns are cautious about going public but are monitoring the market for signs of improvement. Although Klarna’s filing generated buzz about a potential resurgence of fintech IPOs, founders like Hiroki Takeuchi of GoCardless and Lucy Liu of Airwallex believe it’s not yet the right time for their companies. Both emphasize focusing on building better businesses rather than rushing to an IPO.

• Analysts are more optimistic about the outlook for fintech IPOs, citing favorable macroeconomic conditions and reduced volatility
• However, many fintech firms, including Zopa, still prioritize private funding for growth. Zopa’s CEO sees signs that the U.S. IPO market could open in 2025, with Europe following in 2026

??? AI8 VENTURES HIGHLIGHT

Trumponomics 2.0

Following President-elect Donald J. Trump’s victory over Kamala Harris, the financial world witnessed an immediate response. In just one week, the S&P 500’s value surged by $1.9 trillion, pushing stocks to record highs. The U.S. dollar strengthened globally and Bitcoin achieved unprecedented highs.

Wall Street is preparing for more government spending, lighter regulation, bigger deficits, and accelerating growth under a Trump administration and a Republican-led Congress.

Biden’s Economic Legacy

The Biden era was marked by headlines of massive layoffs and a cost of living crisis. The average worker faced double-digit increases in food, energy, housing, and other essential expenses that impacted middle-class families the most and consumed the bulk of household budgets. Despite record highs in the stock market, nearly half of Americans believed the nation was in a recession. Is this Biden’s fault? No. Global supply chain disruptions, stimulus checks, the aftermath of COVID-19 lockdowns, and the ripple effects of geopolitical tensions all contributed to soaring prices. Did Americans blame Biden? Election results suggest they did. Two-thirds of voters believed the economy was on the wrong track.

Hence, Trumponomics 2.0.

Trump’s campaign capitalized on promises of economic revival, pledging to deliver low taxes, low regulations, low energy costs, low interest rates, and low inflation -Trumponomics.

Alpha Showcase 2024: Thank you Mexico City!

What an incredible experience at the NAA International Symposium and Startup Pitching Competition!

On September 25th, we hosted the Startup Pitching Competition for the NAA’s first-ever International Symposium in Mexico City. The event featured four exceptional early-stage startups, each selected through a rigorous process, showcasing their energy and innovative ideas to an audience of over 100 allocators and industry leaders.

A huge shoutout to Yoel Gavlovski and the entire Quash team, congratulations on your well-deserved victory! The competition was fierce, and every participant truly brought their A-game to the pitches. Thank you all for making this such a memorable event!

About the NAA: Founded in 1999, the New America Alliance is dedicated to advancing the economic development of the American Latino community. We believe that Latino business leaders have a special responsibility to lead the way in building the forms of capital crucial to Latino progress – economic, political, human, and philanthropic. Through coordinated philanthropy and strategic public and private collaboration, we aim to drive investment in our community.

Alpha Impact 8 Ventures is thrilled to share our latest insights into the dynamic world of investments with our 2024 Venture Capital Report.

Last year, 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. Nothing happened.

This year, Warren Buffett’s cash reserves reached a record $276.9 billion as Berkshire Hathaway trimmed its stock holdings in Apple. Some view it as a routine adjustment, while others speculate that Buffett perceives an overheated, overvalued market.

Everyone talks about a soft landing, but warning signs are flashing and the world seems to be teetering on a delicate balance. Is there something we’re missing? Is there an unseen factor at play?

Read Full Report

Beyond Survival: Opportunities in Climate Change.

It all started in 2010 after a great conference with Mr. Al Gore. I was in Mexico City attending an event where Mr. Gore presented what the climate would look like if we did not act quickly and reduce our carbon emissions. That day, Mr. Gore’s team made his “models” available for everyone to study and play with. He told me that the largest desert in the world would be what used to be Mexico, California, Nevada, Arizona, New Mexico, and Texas, all the way to the State of Mexico. He didn’t know if Mexico City would be a part of it because of its altitude. That day, we walked several miles to our dinner because of the bad news.

Take a look at the complete blog post of our managing partner, Carlos Ochoa, on 8 Wealth Creation Essentials.

If you have any comments or feedback, just shoot an email @[email protected]!

Happy reading,

AI8 Ventures’ Research & Investment Team