MaGiC Tech Newsletter June 2023

Dear MaGiC Investor,

We are pleased to share with you the Tech Newsletter June 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.

Recent News

ChatGPT: More than half of the tech HR employees surveyed reported using AI chatbot ChatGPT for tasks such as training, surveys, performance reviews, recruiting, employee relations, and more, a new report has shown. According to B2B Reviews, more than one in 10 tech HR employees even admitted to using ChatGPT to craft employee terminations. Moreover, the report showed that HR employees saved approximately 70 minutes per week using ChatGPT.

First US law over AI bias in hiring tools takes effect:

The first-of-its-kind law requires companies to:

• Notify job candidates who live in NYC that AI is being used and let them request info on what data is being collected.
• Conduct yearly independent audits of any AI tools they use to make employment decisions aimed at ensuring they don’t discriminate based on sex, race, or ethnicity and publish ratios to show whether they disproportionately impact specific groups.

Businesses that don’t comply can be fined up to $1,500 per violation a day

Meta’s Threads app hit 30m users in first 24 hours.

Threads is more than holding it together. Meta’s Twitter clone gained 100 million sign-ups in the first 4 days after it launched on Wednesday evening and became the fastest-growing consumer app in history. The record was previously held by ChatGPT, which recorded 100 million active users in two months.

This accomplishment can be attributed to the app's association with Instagram, which boasts an active user base of over two billion. As a result, Threads had the advantage of tapping into an existing audience instead of starting from scratch.

Apple debuts its play to make VR headsets cool:

Apple has finally sprung its long-awaited cannonball into the augmented reality space, and it could revolutionize the industry—or flop hard.

• Apple CEO Tim Cook unveiled the $3,499 Vision Pro yesterday at the company’s annual Worldwide Developers Conference. The presentation claimed the mixed-reality headset—which accommodates both AR and VR—will be the “most advanced personal electronics device ever.”
• Apple is positioning the headset to replace desktop computer-cluttered workspaces with an “infinite canvas” of virtual screens that hover in the field of view. Users can navigate with just their eyes, hands, and voice (no clunky controllers!).
• The Vision Pro boasts an enormous virtual screen through lenses with “more pixels than a 4K TV for each eye.” A new feature called EyeSight will keep users’ eyes visible through the display most of the time.
• Disney CEO Bob Iger guest-starred to tease a partnership with immersive experiences like watching Star Wars content while on one of the franchise’s planets. Users will also be able to play more than 100 Apple Arcade titles on day one.

US ECONOMIC OUTLOOK

In this distinct business cycle marked by unusual labor market characteristics, there are reasons to be hopeful that the US economy can avoid a recession. Unlike previous downturns, businesses have been reluctant to let go of the talented workforce they struggled to hire, train, and retain post-pandemic. This phenomenon of labor hoarding has resulted in a limited impact on household income and a gradual slowdown in consumer spending rather than a significant contraction.

At the same time, the necessity to address supply shortages across the economy has fueled robust construction activity, prevented a severe decline in manufacturing, and helped alleviate price and wage pressures. However, there are notable challenges posed by persistent high prices and costs, tightening credit conditions, and rising interest rates. As the Federal Reserve continues to tighten its policy and interest rates gradually increase, the likelihood of a recession still remains, although we have revised our recession odds to 55%. Our projection for real GDP growth is 1.2% in 2023, followed by a modest expansion of 0.7% in 2024. (Source: EY)

Cooling labor market: Despite better-than-expected job growth in May, various labor market indicators and conversations with business executives suggest that conditions are gradually softening. Job gains across sectors are becoming less widespread, hours worked are decreasing, wage growth is cooling, hiring is slowing down, the number of voluntary quits is reducing, and there is a slight increase in layoffs. While we anticipate hiring freezes, strategic resizing decisions, and some wage growth compression in the coming months, we do not foresee a severe employment pullback. We expect the unemployment rate to rise to around 4.1% by the end of the year and exceed 4.5% in 2024.

Consumers feeling the pressure: Although consumers are still spending, they are becoming more cautious due to ongoing inflation and the tightening cycle implemented by the Federal Reserve. While household finances are not unhealthy, vulnerabilities are emerging in the form of rising delinquencies and increased reliance on credit. With employment and household disposable income growth expected to moderate in the second half of the year, the slowdown in consumer spending will accelerate as the cushion provided by excess savings diminishes, student loan repayments resume, and credit conditions tighten further. We anticipate that consumer spending will increase modestly by 1.8% in 2023 and by 0.7% in 2024.

Uneven disinflation: Inflation pressures remain elevated, but the disinflation process is ongoing. The Consumer Price Index (CPI) inflation fell significantly in May, reaching its lowest point since March 2021. Core CPI inflation has also declined and is now 1.3 percentage points below its peak in September 2022. While sequential price momentum suggests persistent disinflationary dynamics, the process may not be entirely smooth. It is expected that headline CPI will be in the low 3% range in June, while core CPI will likely be around 4%. In the following months, the base effects from lower energy prices will diminish, but the easing demand for goods and services, softer housing price inflation, and cooling wage growth should contribute to continued disinflation throughout 2024.

June "skip" likely followed by July Fed hike: The Federal Reserve maintained the federal funds rate range unchanged at its June policy meeting but indicated that two more rate increases are likely this year due to concerns about core inflation exceeding the 2% target. The Fed's approach, which heavily relies on backward-looking economic data, presents some concerns. While economic data convinced policymakers of the need for additional policy tightening, no policymakers voted in favor of tightening policy in June. Communicating a rate hike in July with limited additional economic data and lower inflation poses a credibility challenge for the Fed.

Credit crunch concerns: Lingering stress in the banking sector and pressure on small and midsize banking institutions pose a significant downside risk to the economic outlook. If banking stress were to spread more widely, it could lead to severe funding pressures on businesses, more bank failures, and significant constraints on the availability and cost of credit. The consequences for the economy would be severe, with consumer spending, residential investment, and business investment retrenching. Excessive Federal Reserve tightening and spillovers from financial markets also pose significant threats to consumer and business demand.

US PRIVATE MARKET OUTLOOK

For the past 3 years, VCs and their limited partners (LPs) have wanted to deploy their surplus of dry powder. Now, in 2023, the founders are looking to tap that dry powder. The total ask for venture funding has already surpassed the undeployed but committed capital that VCs have available. However, the LPs are still cautious as they witness a downward pressure on the valuations of technology startup stocks. Despite these obstacles, we expect to see an uptick in M&A and private equity (PE) deals throughout 2023 as strategic and financial acquirers go bargain-hunting.

Global Venture Capital Trends

2023 has created a VC market that is nearly the antithesis of 2021, as slower conditions make that year's exuberance seem like a distant memory.

The narrative of this year's venture ecosystem has jumped around quickly, however. Generative AI is surrounded by hype reminiscent of crypto and Web3, but on the other hand, the broader VC market is experiencing a significant lack of capital availability, with deal values down roughly two-thirds on a quarterly basis from past highs.

Some aspects of the first six months of 2023 were unsurprising, with sluggish deal activity, poor exit conditions, and lagging fundraising. Others, such as Silicon Valley Bank's collapse and subsequent acquisition, were very unexpected.

While SVB's collapse hasn't affected the market to the extent initially predicted, the pressures created by the bank's failure have quickly reshaped venture.

MAGIC USA PORTFOLIO UPDATE

Magic USA’s tech portfolio now stands at 20 ventures across Enterprise hardware, Enterprise software, HealthTech, CyberTech, ConsumerTech, Energy, Robotics, Augmented Reality, Autonomous Vehicle, RetailTech and AgriTech.

We continue to engage with 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:

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.

The company have collaborated with Sylq, the French e-payments leader, to implement high- performance AI transaction monitoring and automated customer screening to support company growth.

Sylq acquired ThetaRay’s newly released AI customer screening solution to boost its unique, fully digital onboarding process for KYB (Know Your Business) and KYC (Know Your Customer). ThetaRay’sAPI-driven and AI-based solution enables Sylq to introduce high automation to monitor transactions and screen merchants against sanctions lists, watchlists and third-party databases such as politically exposed persons (PEP) and adverse media.

Trusona

Trusona, founded in 2015, provides a no-passwords authentication solution meant to be faster, easier and safer than the status quo. The product helps battle cyber breaches and the frustrations associated with forgotten passwords and is meant to be a means of complying with European Union PSD2 SCA and United Kingdom Open Banking regulations.

Trusona has launched the industry’s first app-less passwordless MFA solution designed to improve business growth and profitability with a “tap and go” sign-in experience. The solution is a low-code, cloud-based service that enables users to authenticate without a password using smartphones, laptops and desktop computers. It can also serve as a secure, low-cost replacement for SMS OTP (one-time passcode) authentication.

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 May 2023, Plenty has opened Plenty Compton Farm – the world’s most technologically advanced indoor vertical farm, designed to grow up to 4.5 million pounds of leafy greens annually in a single city block in Compton, California. The farm is made possible by dozens of Plenty’s patent assets, including the company’s unique 3D vertical architecture that drives its industry-leading yield of up to 350 times the yield per acre of a conventional farm.

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 has announced the release of AccountGPT, an AI-driven enhancement to its account planning application. This new feature will enable go-to-market (GTM) teams to create strategic account plans quickly and easily by removing menial tasks and manual data entry.

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 announced the introduction of the data.world Data Catalog Platform with new Generative AI-powered capabilities for improving data discovery. data.world is the industry’s most-used data catalog with more than 2 million users, including enterprise customers with tens of thousands of active users. Now with native Generative AI integrations, even more people can use data.world to discover data and unlock organizational knowledge – regardless of expertise level.

data.World also completes the acquisition of the Mighty Canary technology and its incorporation into a new DataOps application. The application uses automations to surface contextual insights and real-time data quality updates directly to the BI, communications, and collaboration tools that data consumers use. The DataOps application provides a seamless way for data teams to update data consumers on the health of their data, communicate important information, and receive feedback – increasing the use of high quality data.

TechSee

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

Techsee announces that it has integrated its computer vision AI platform, Visual Intelligence, with ChatGPT to enable Multi-Sensory AI (MSAI) for service automation. The fusion of ChatGPT with visual AI allows service organizations to automatically verbally and visually communicate with customers by seeing and understanding and providing augmented reality overlays over real-world images and videos. The integration gives ChatGPT the ability to both request images and videos from a user's smartphone and send back images to better guide or answer questions.

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