MaGiC Tech Newsletter April 2023

Dear MaGiC Investor,

We are pleased to share with you the Tech Newsletter April 2023 edition. In this issue, we'll take a closer look at some of the latest trends and notable deals in the industry along with an update on MaGiC investments.

PE & VC Activity in 1Q23

Over the last several quarters, the market has bifurcated, with one side defined by smaller transactions, and the other by take-private deals that have dominated deal activity for transactions of significant size.

The first quarter of 2023 saw PE firms announce deals valued at US$92b, a marked decline from the US$240b announced in the first quarter of last year, but roughly on par with Q4. Activity picked up as the quarter progressed, however, driven by large-scale take privates – March saw more than US$62b in PE deals announced, versus just US$12b in January. (Source: EY)

Ten largest deals with PE involvement thus far in 2023

Tech remains a powerful thesis, the result of continued belief in the sector’s long-term secular growth trends coupled with the ability to acquire assets at moderated valuations. The space has garnered nearly a quarter of aggregate PE capital invested in significant transactions (US$100m-plus) over the past five years. The first quarter of this year was no exception — tech-focused deals accounted for 50% of PE’s total activity by value, up from roughly a quarter in the first three months of 2022.?

In particular, firms are finding opportunities in software, especially those engaged in developing enterprise platforms deployable for enhancing cybersecurity, artificial intelligence and machine learning (AI/ML), climate-tech, and supply chain analytics. In total, 80% of PE’s deployment so far this year in the tech space has been in the software vertical. These deals are expected to build further momentum and expand into the areas which are a confluence of tech and other core sectors, such as FinTech and Consumer-Tech.

Similarly, Venture and growth investors in private companies continued to scale back their investment pace in the first quarter of 2023. Global funding in the first quarter reached $76 billion — marking a 53% decline year over year from $162 billion in the first quarter of 2022. That’s even including a reported $10 billion investment into OpenAI — largely from Microsoft — and a $6.5 billion round for payments giant Stripe. Without those two large deals, Q1 venture funding would have been down even more dramatically, close to $60 billion.

Every funding stage last quarter was down 44%-54% year over year, a clear signal that the slowdown is not confined to late-stage funding. Investors across each stage scaled back as they took time to assess new investment opportunities while guiding existing portfolio companies.

The collapse of Silicon Valley Bank on March 10 was an added shock to a weakened funding environment. The bank had more than 20,000 startup depositors with $5 million or less in revenue.

The impact was not limited to U.S. startups, either: SVB was also the bank of choice for startups around the world, sourcing funding from U.S. venture firms. Investors and founders scrambled to secure funds to meet payroll as a swath of startups faced possible closure through lack of funds.

Despite the record funds raised by investors, VC firms continues to deploy capital at a slower pace in the first-quarter 2023. Quarter-over-quarter funding was flat, despite two of the largest fundings in these recent peak years raised this past quarter. OpenAI’s $10 billion raise in January and Stripe’s $6.5 billion round last month make up the largest fundings to private venture-backed companies since 2019 — before the pandemic.

Deal counts have shifted downward at each stage with a more dramatic shift as of Q3 2022.

Outlook – volatility will be a catalyst for continued growth in key themes

It’s likely that today’s market conditions will provide marked tailwinds to a number of themes already underway in the space:

1) The particulars of today’s operating environment have yielded a major catalyst for private credit funds. As PE’s traditional lending sources stepped away from the market in the second half of last year, private credit has stepped in as a major source of alternative funding for a much larger swath of PE deals. Recent banking instability seems likely to exacerbate the trend. Credit funds continue to work together on larger deals and will ultimately take some measure of share from the broadly syndicated loan market, even after those markets normalize. According to S&P Leveraged Commentary and Data, of the 73 PE deals tracked in Q1 by LCD, just four were financed by the syndicated markets.

2) Recent bank failures dimmed the overall outlook for venture investment, forcing VCs and start-ups to reassess options. In this environment, entrepreneurs will need to reevaluate their options and examine all their financial operations, from cash balance and run rates to venture debt. VCs will continue to deploy capital, but deals will be more investor-friendly. Entrepreneurs will need to sharpen their business models and demonstrate a clear path to cash breakeven/profitability. Entrepreneurs with solid unit economics and realistic growth projections will be best positioned to compete for VC dollars.

MAGIC USA PORTFOLIO UPDATE

Magic USA’s tech portfolio now stands at 18 ventures across Enterprise hardware, Enterprise software, HealthTech, CyberTech, ConsumerTech, Energy, Robotics, Augmented Reality, Autonomous Vehicle, RetailTech and AgriTech.

We continue to engage with the investment managers and companies to keep a close watch on cash burn and other health parameters. Below you will find a selection of updates from the portfolio:

1. ThetaRay

ThetaRay has developed an anomaly detection platform that can be used to monitor cross-border bank transactions (Correspondent Banking), anti-money laundering ( anti-fraud, cyber security attack detection and growth opportunity identification, as well as critical infrastructure and advanced manufacturing fault prediction and cyber security.

ThetaRay reports ARR exceeded the company’s aggressive target for the year and that this was achieved with lower burn and fewer headcount than budgeted. ThetaRay adds that it also surpassed its customer satisfaction and delivery goals. The company added new customers for its SaaS anti-money laundering solution in Q4 which includes marquee institutions from Brazil, UK, Africa & UAE.?

2. Plenty

Plenty is a USA-based startup, building scalable, vertically-integrated farms. It has developed a full technology stack to reinvent agriculture and has created the first scalable food production platform.

In Q4 2022, Plenty reports that it completed construction of its vertical farm in Compton, California. New produce varieties from the farm include spinach, a crop that previously has not been possible to grow at scale in vertical farms. Once fully ramped, the Compton facility is expected to serve retail locations across the West Coast with an emphasis on California.

Also, Plenty broke ground at its new site in Virginia, which it plans to build out into a multi-farm “Campus” – the largest indoor vertical farming campus in the world. The initial farm on the Virginia site, which will be the world’s first scaled vertical strawberry farm, is being developed in partnership with Plenty’s strategic investor/partner Driscoll’s. Plenty expects an initial commercial launch from Virginia in H1 2024 at retailers throughout the Northeast.

The company also was highlighted in LinkedIn’s annual Big Ideas series of ideas that will change the world in 2023.

3. People.AI

People.ai delivers the industry’s leading Revenue Operations and Intelligence platform using AI. People.AI’s platform helps sales, marketing, and customer success teams uncover every revenue opportunity from every customer, by capturing all customer contacts, activity and engagement (emails, Zoom etc.) to drive actionable insights across all revenue teams.

People.ai recently announced Sam Yang as its President of Field Operations. Yang will lead People.ai’s Go-To-Market efforts and drive company revenue and growth opportunities.?

The Company announced several new integrations, including People.ai for Oracle Sales Cloud, which was listed on the Oracle Cloud Marketplace. It also joined Zoom’s ISV Partner Program with a new partnership focusing on Zoom IQ for Sales, a conversational intelligence solution for sales professionals from Zoom Video Communications.?

People.ai was 83rd on the Y Combinator Top Private Companies for 2022.

4. data.world

data.World, founded in 2016, has built one of the only modern catalogs for data and analysis delivered in a cloud-native Software as a Service (SaaS) way.

data.world reported that it expanded its coverage into the higher education vertical by securing one of the leading universities in Texas. The new healthcare initiative will enable the company to tackle new and exciting use cases commercially that are very closely aligned to its social mission to connect collaborators from all over. data.world continued its momentum by closing new deals with one of the largest homebuilders in the US, a major stock exchange in Europe, a premier endpoint security firm, and a rapidly growing fintech infrastructure provider in the US. While use cases differ across each of these customers, the company’s knowledge graph-based architecture continues to be a key differentiator in the sector.

The company launched Collection Access Control. This new product is one of the most anticipated features in the company’s effort to give customers more control over their deployments and will have a big impact on enterprises’ ability to organize, manage and govern their data in domains.

The company continued to drive significant partnership activities in Q4 with a particular focus on Snowflake as a key strategic partner. It was accepted into Snowflake’s Accelerated Governance partnership program. In addition, the company announced that it was expanding its technology partnership with Databricks to become an official Databrick’s Technology Partner. The partnership will offer greater visibility and understanding of data across the Databricks Lakehouse Platform and other data sources through an integration with Databricks Unity Catalog, the platform’s unified governance solution.

5. TechSee

TechSee uses Machine Vision & Augmented Reality powered by smartphones to help remote tech support experts quickly.

TechSee reports that the company added new logo customers, upsold others and churn declined. TechSee deepened its relationship with Amazon by joining the Amazon Web Services’ (AWS) Partner Network, providing a frictionless purchasing process for mutual AWS/TechSee customers. The company also partnered with TELUS International to bring its AI-powered service automation and visual-engagement products to TELUS International's customer portfolio.

OPPORTUNITIES IN PLAY

We remain active in identifying opportunities for investment in technology space and selectively bring the opportunities to the investors.

Currently, we are raising funds for the EQUIAM III Fund and the PROOF III Fund. Opportunity brief as below:

EQUIAM Fund III – EQUIAM will invest in a portfolio of 30 pre-IPO, primarily US based, Series B+, venture-backed private companies with valuations greater than US$ 250 Mn, the majority of which are greater than $1 Bn. EQUIAM focuses on late-stage investments via secondary markets to build the investment portfolio. Fund is able to generate faster exits via liquidity events (IPO, SPAC, Secondaries or late-stage M&A), leading to attractive return profiles for the investors.

PROOF FUND III - Pro Rata Opportunity Fund (PROOF) is a US-based fund providing investors with access to top venture-backed companies. PROOF invests in the unfilled pro rata rights of small-cap VCs that no longer have the capital to follow on in the subsequent financing rounds of their best investments. Thus, PROOF is able to get allocations in highly competitive rounds for companies which are breaking out. It focuses on growth / late-stage startups and participates in the primary fund raise rounds of these startups. As such, the fund intends to make calibrated investments over a 5-year period, which helps them to ride out any short-term market cycles.

If you have any further questions, please contact the Investor Relations team at [email protected]