New investment recipes: SPVs and AI ????

Week of June 3rd, 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: xAI Laps Field In Another Slow Week?(5 minute read)?

1. xAI (AI): Elon Musk's AI startup $6 billion, becoming the second-most-valuable generative AI company behind OpenAI. The funding values xAI at $24 billion, trailing OpenAI’s $86 billion but ahead of Anthropic’s $18 billion
2. Solutions by Text (fintech): raised $110 million in a mix of equity and debt. The startup facilitates financial services via text, including loan origination and bill payment
3. Frore Systems (mechanical engineering): secured $80 million in a Series C led by Fidelity Management. The startup developed the AirJet cooling chip, enabling AI use on edge devices by managing heat
4. Mavenir (network software): raised $75 million from an existing investor. Known for its cloud-native software managing complex networks, Mavenir allows customers to scale operations without traditional telecom hardware
5. CinRx Pharma (biotech): closed a $73 million round from undisclosed investors. The firm, with a diverse portfolio of medicines, saw its former portfolio company CinCor Pharma acquired by AstraZeneca for $1.3 billion?

INDUSTRY?

Q1 2024. Global Private Market Fundraising Report?(15 minute read)?

The venture capital (VC) fundraising landscape faced challenges in Q1, with only $29.8 billion raised, and just seven funds globally closing on $500 million or more, compared to over 150 in 2021?

• The slow exit market is prolonging fundraising difficulties, with the average time between fund closings extending to the longest period since 2018
• Established and emerging managers alike raised less than 17% of their 2023 total during Q1
• A high amount of dry powder in the market (+$700 billion globally), adds to the challenge, as LPs are hesitant to commit further without increased deal activity?

Saas Startup Funding Falls?(5 minute read)?

Interest in Software as a Service (SaaS) has declined among startup investors. So far in 2024, SaaS companies have raised $4.7 billion in seed through growth-stage financing, on track to reach far below last year's $17.4 billion?

• This funding drop coincides with a tough period for public SaaS companies
• Some large deals continue, for example, Wiz raised $1 billion in a Series E round
• However, mega-deals are less frequent, with only 21 deals over $100 million in the past year compared to 147 in 2021?

Generative AI seed funding drops 76% as investors take wait-and-see approach?(5 minute read)?

For two consecutive quarters, generative AI dealmaking at the early stages has declined, dropping 76% from its peak in Q3 2023. Investors are now more cautious, reassessing their strategies after an initial rush of funding?

• VC deal value for pre-seed and seed-stage deals fell in Q1 2024 to 122.9 million, far from its Q3’s peak of $517.7 million
• Deal count also declined with only 34 deals recorded in Q1
• Market saturation and profitability challenges are significant concerns?

Betting Big On Climate Tech: How VCs Are Powering Climate Solutions?(5 minute read)?

In 2023, climate tech investment fell by 14.5% to $41.1 billion, down from a peak of $51.0 billion in 2021. Early-stage and venture-growth deals saw significant declines, while pre-seed/seed deal value rose by 16.2%. Exit activity in climate dropped from $18.7 billion in 2022 to $9.3 billion in 2023. Despite these hurdles, there is a notable increase in savvy use of capital in climate tech:?

• In 2023 the largest segments in the vertical were low-carbon mobility, industry, grid infrastructure, intermittent renewable energy sources
• 50 VC deals for climate tech companies in 2023 exceeded $150 million, nine exceeded $500 million?

VCs are selling shares of hot AI companies like Anthropic and xAI to small investors in a wild SPV market? (5 minute read)?

Venture capitalists are eager to invest in hot AI startups but often face difficulties securing shares. Smaller investors are accessing these opportunities through Special Purpose Vehicles (SPVs). SPVs pool money from multiple parties to buy shares of startups like OpenAI and Elon Musk’s X.ai.

• Early investors in popular AI companies exercise pro-rata rights, creating SPVs to fund additional share purchases. Elon Musk’s xAI raised part of its $6 billion round through SPVs, which had significant upfront and management fees
• Investors can join SPVs through existing limited partner networks or brokers, leading to varying terms and conditions
• SPVs can also be associated with primary fundraising rounds, allowing small investors to buy shares alongside major investors?

Liquidation preferences, other types of structure remain persistent in VC rounds in 2024?(6 minute read)?

The venture capital market shifted in favor of investors leading to a reset in valuations and an increase in investor-friendly deal terms. In Q1 2024, 8% of new funding rounds included high liquidation preferences, tied for the highest percentage in a decade, indicating a persistent trend in deal negotiations?

• Some common investor-friendly deal terms include participating preferred shares, liquidation preferences, cumulative dividends, full ratchet provisions, and redemption rights
• Despite the shift in negotiation power towards investors, most companies have not raised rounds with participating preferred shares or liquidation preferences higher than 1x
• This reflects a balance between investor protection and the long-term health and growth potential of portfolio companies?

??? ECONOMIC SNAPSHOT

The World’s Largest Economies: Comparing the U.S. and China?(4 minute read)?

Together, United States and China, contribute to 43.2% of the global GDP. The US has a GDP of $28,780 billion (26.3% of the global total) while China's GDP stands at $18,530 billion (16.9% of the global economy)?

• On the Equity Market Valuation: the US dominates the global stock market valuation, comprising 61% of the total, while China contributes only 2.8%. Factors contributing to this disparity include differences in market maturity, corporate governance, and international participation
• Foreign Direct Investment: The US leads in cumulative FDI stock, with $10.5 trillion, representing 23.7% of the global total, while China follows closely with $3.8 trillion, accounting for 8.6%?

Mexico's Moment of Promise Comes with Risks for Its New President?(5 minute read)?

Mexico has elected Claudia Sheinbaum as its 66th president in the country's largest-ever elections. Sheinbaum's presidency comes at a pivotal moment for Mexico's economy:?

• Investors are increasingly turning to Mexico for 'near-shoring' supply chains, partly due to trade tensions between the U.S. and China. This trend has led to Mexico becoming the top exporter to the U.S., with substantial investment inflows
• However, foreign investors face challenges, notably crime and violence, which pose risks to economic stability and growth
• The U.S. business community has a vested interest in Mexico's leadership due to the country's significant economic potential and existing trade relationships

With No Rate Cut Expected, Here’s What To Watch At June’s FOMC Meeting?(6 minute read)?

The Federal Open Market Committee (FOMC) is unlikely to adjust rates at its June meeting, but markets are keenly observing for hints of potential rate cuts in 2024. Despite earlier concerns over inflation, recent data has shown mild optimism regarding inflation trends, while weakness in the job market remains a factor for potential rate adjustments:?

• FOMC is expected to maintain current interest rates at its upcoming June meeting, with minimal likelihood of a rate cut
• Policymakers are closely monitoring economic indicators for clues on potential rate cuts later in 2024, with one or two cuts seen as probable scenarios
• Markets project the first rate cut of the cycle possibly in September, though uncertainty remains high, with a 15% chance of no cuts in 2024?

?????????? IMPACT & DIVERSITY

Companies Quietly Ramp Up DEI Efforts Amid Political Turmoil?(4 minute read)?

Despite divisive politics, companies remain committed to their diversity, equity, and inclusion (DEI) programs, with most planning to invest more in them over the next two years. According to a survey by Bridge Partners, conducted among 400 executives and HR heads at companies with at least $25 million in revenue or more than 250 employees, only 4% plan to cut back on DEI initiatives, compared to 2% in the previous year

• While companies may temporarily dial back their rhetoric on diversity due to political uncertainty, the two-year investment commitment demonstrates a longer-term dedication to DEI
• However, challenges remain, such as ensuring that executive teams reflect the diversity of employees and customers?

With DEI Under Attack, Here Are 5 Powerful Ways to Be a More Inclusive Leader?(4 minute read)?

DEI is facing a backlash, leading major companies to quietly remove the term from their public communications. However, companies are not abandoning DEI practices; instead, they are rebranding and relabeling them. Despite the challenges, inclusion remains vital, with research showing that diverse companies financially outperform their peers. To prioritize inclusion in business:?

1. Hire a diverse team: Minimize bias in the hiring process to reflect the diverse demographics of the marketplace
2. Lead by example: Encourage participation from everyone in the organization, valuing diverse opinions and approaches
3. Create a safe space: Foster a culture where all employees feel comfortable providing honest feedback and opinions
4. Combat intolerance: Implement a zero-tolerance policy for discriminatory behavior and address it promptly
5. Cultivate inclusion as a habit: Organizations with inclusive cultures are more likely to meet financial targets and innovate effectively, making inclusion a worthwhile investment

?? IPOs

Could Japan Be The Next Hotbed Of US IPOs??(4 minute read)?

Japan, long seen as a fading economic power, is witnessing renewed interest in listing its companies on Wall Street. Japanese companies are keen on the global visibility and better valuations offered by a U.S. listing, especially in sectors like biotech, AI, and robotics?

• Warren Buffett’s Berkshire Hathaway’s success with Japanese investments has also drawn attention
• Geopolitical tensions between the U.S. and China and increased innovation in Japan are attracting global investors
• Despite increased interest, Japanese companies listing on NASDAQ have struggled to attract attention due to the active domestic stock market and lack of familiarity with the U.S. listing process among local investment banks and advisors

??? AI8 VENTURES HIGHLIGHTS

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?

Check out the full updated report with 2024 commentary

If you have any comments or feedback, just shoot an email!

Happy reading,

AI8 Ventures’s Research & Performance Team