Tech Newsletter July 2023

Dear MaGiC Investor,

We are pleased to share with you the Tech Newsletter July 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

Meta to ask EU users' consent to share data for targeted ads: Social media giant Meta on Tuesday said it intends to ask EU-based users to give their consent before allowing targeted advertising on its networks including Facebook, bowing to pressure from European regulators.

China curbs exports of drone equipment amid US tech tension. China announced export controls on some drones and drone-related equipment, saying it wanted to safeguard "national security and interests" amid escalating tension with the United States over access to technology. The restrictions on equipment, including some drone engines, lasers, communication equipment and anti-drone systems, will take effect on Sept. 1, the commerce ministry said.

US tech companies flag 20 policy barriers in digital trade with India. The Washington-based Computer & Communications Industry Association (CCIA), which has Google, Uber, Meta, Amazon, amongst others, as its members, has identified 20 policy barriers to US-India digital trade. These include the amendment to the IT Act, which imposes additional requirements under the Intermediary Rules (2021), the Content Moderation Act, the equalisation levy, and the proposed Telecom bill.

Google-Parent Alphabet Offloads Nearly 90% Stake in Trading App Robinhood. Alphabet had reportedly invested in Robinhood when the latter was an unlisted startup, and it held over 4.9 million shares in the company as of the end of 2021. That stake was worth nearly $419 million when Robinhood shares hit their peak of $85 in August 2021, just a month after the initial public offering. Following the sale, Alphabet now owns 612,214 shares in the company, worth about $7 million, according to Reuters calculations

Paytm CEO to Buy 10% Stake From China’s Antfin. Paytm Chairman Vijay Shekhar Sharma will buy a 10.3% stake worth $628 million in the firm he founded from an arm of Chinese fintech giant Ant Financial in a deal that would make him its single largest shareholder. "The government and RBI both were concerned about Chinese stakes in Indian fintechs, so the point was to reduce the stake of the Chinese companies in Paytm," said a Mumbai-based analyst with a domestic brokerage. They did not want to be named as they are not authorised to talk to media.

US ECONOMIC OUTLOOK

General labor market resilience, moderating inflation, and gently slowing final demand growth offer hope of an economic soft landing. With headline inflation cooling rapidly, real wage growth is turning positive providing a tailwind to consumer spending. Simultaneously, the need to address supply shortages across the economy has supported robust construction activity, prevented a severe manufacturing pullback, and helped price and wage pressures ease. Still, the economy continues to face significant headwinds from persistently elevated prices and costs, tightening credit conditions, and rising interest rates. Union strikes, student loan repayments, and corporate debt vulnerabilities also represent downside risks. Overall, we see real GDP growing 1.6% in 2023 and expanding at a muted 0.7% pace in 2024, with recession odds around 50%.

Labor market dynamics are undergoing a rebalancing process. The demand for labor has been gradually cooling, resulting in a slowdown of job growth to 209,000 in June. This marks the weakest rate of expansion since December 2020. The decrease in job openings, coupled with a sustained increase in the labor supply, indicates a gentle easing of labor constraints and a reduction in wage pressures. This observation is supported by our discussions with business leaders, who indicate a more cautious stance in terms of hiring and compensation. We anticipate a continuation of hiring limitations, strategic resizing choices, and some moderation in wage growth in the upcoming months. However, we do not predict a significant decline in employment opportunities. Our projections suggest that the unemployment rate will likely increase from its current level of 3.6% to approximately 4.1% by the end of the year, and it is expected to reach around 4.5% in 2024.

Anticipated Deceleration in Disinflation: The most recent Consumer Price Index (CPI) data reveals a notable slowdown in inflation, as consumer price inflation dropped by one percentage point (ppt) to 3.0% on a year-over-year (y/y) basis. This is the lowest rate since March 2021. Core CPI inflation also experienced a decline of 0.5ppt to reach 4.8% y/y, now standing 1.8ppt below its peak in September 2022. The diminishing demand for goods and services, the influence of milder housing price inflation, and a reduction in wage growth are expected to sustain the disinflationary trend throughout 2024.

However, as the effects of base comparisons (favorable contrasts with elevated food and energy prices from the previous year) wane, the headline CPI inflation is likely to experience a slight rebound in the upcoming months before gradually settling down towards the 3% mark by the end of the year. Concurrently, core CPI inflation is expected to ease towards 4% in late summer, eventually stabilizing at approximately 3.7% y/y by December.

FOMC Meeting, July 25-26

As widely expected, the Federal Reserve increased the range of the federal funds rate by 25 basis points (bps) to 5.25%-5.50% during the July meeting of the Federal Open Market Committee (FOMC). This move likely signifies the conclusion of a significant period of tightening. Nonetheless, Fed Chair Jerome Powell took deliberate steps during the press conference to convey a more assertive stance in order to prevent any unintended loosening of financial conditions.

US PRIVATE MARKET OUTLOOK

The current period of uncertainty in global markets and economies is driving a sustained bout of introspection among large public companies, with many considering large carve-out, spin-off or take-private transactions. These actions have multiple aims, including a need to maximize strategic focus, prune underperforming businesses, transform core businesses and, in some cases, raise cash.

PE investors have been significant beneficiaries of this trend, with take-private and carve-out transactions being a bright spot in the first few months of 2023.?

We see continued opportunity for PE to pursue major acquisitions in this environment. The most successful investors will be those who are proactive in identifying actionable public targets (those with sound fundamentals but which are non-core or face near-term headwinds), developing a compelling value creation strategy and bringing differentiated capabilities spanning talent, digital and strategy to execute on the deal.

Global Venture Capital Trends

Global corporate venture capital-backed funding ticks up for the first time in nearly 2 years.

Global corporate venture capital (CVC)-backed funding grew for the first time since Q3’21, increasing 4% quarter-over-quarter (QoQ) to $14.6B in Q2’23. Deals also ticked up — though just by 1% — to end a 4-quarter decline.

Despite the broader gains, the quarter was not without its lows. CVC-backed retail tech funding dropped below $1B for the first time since 2017, while CVC-backed funding to US-based companies was at its lowest level in nearly 4 years.

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:

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 announced that it has joined the Microsoft Cloud Solution Provider program with its SONAR solution now available at the Microsoft Azure Marketplace. To date, more than 50 banks and fintechs around the world have implemented ThetaRay’s solution, hosted on Microsoft Azure.? Among those that have adopted the technology are some of the world’s leading banks, including Santander, Mashreq Bank, Travelex Bank, and ClearBank, as well as many fintechs around the world.

2. 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 be a secure, low-cost replacement for SMS OTP (one-time passcode) authentication.

3. 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 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.

4. 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 announced that it will now integrate with Microsoft Sales Copilot. The new solution will help sellers measure and visualize stakeholder engagement, generate persona specific emails, and understand successful deal patterns based on similar opportunities so they can follow the best path to closed-won deals.

5. 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 launched new automation and automation-driven workflows to dramatically accelerate the delivery of governed data across enterprise teams. The announcement introduces the third class of AI-driven bots on the data.world Data Catalog Platform. The data governance-focused Eureka Bots join the data discovery-focused Archie Bots and DataOps-focused BB Bots to address the most pressing challenges to working effectively with data, automating data management processes, and delivering governed data for AI.

6. TechSee

TechSee uses Machine Vision and 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 communicate with customers automatically verbally and visually 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]