Week of July 15th, 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: Skild AI Grabs $300M To Build Robot Brains (5 minute read)

1. Skild AI (robotics): raised $300 million in a Series A funding round, the startup focuses on developing robot brains for various applications

2. Element Biosciences (biotech): secured $277 million in a Series D led by Wellington Management to advance its DNA sequencing and multi-omics technology

3. Regal (film): raised $250 million to upgrade its 425 locations, enhancing amenities like luxury recliners

4. HarmonyCares (healthcare): raised $200 million, aims to expand its operations across 15 states, backed by General Catalyst and McKesson Ventures

5. Earned Wealth (financial services): raised a $200 million investment led by Silversmith Capital Partners. The company offers medical professionals financial planning, tax planning and investment advice on one platform

INDUSTRY

Startup Valuations Start Booming Again (5 minute read)

The startup market has been challenging over the past year, with VCs pulling back, banks tightening loans, and high interest rates making it harder to start new companies. However, recent reports indicate a potential rebound:

• U.S.-based startup valuations reached an all-time high for early- and late-stage deals in the first half of 2024

• This improvement is attributed to startups' cost-cutting measures during the funding slump, a resilient stock market, and controlled inflation, potentially leading to lower interest rates

• Despite these promising signs, deal volume remains low as investors remain cautious due to global instability and internal challenges within VC firms

Google is close to making its biggest acquisition ever (3 minute read)

Google's parent company Alphabet is in advanced discussions to acquire Wiz, a fast-growing cybersecurity startup based in New York City, for approximately $23 billion. If finalized, this acquisition would mark Google's largest-ever purchase, surpassing its acquisition of Motorola for $12.5 billion

• Wiz specializes in cybersecurity software tailored for cloud computing and recently secured $1 billion in venture capital funding

• The potential deal underscores Google's strategic focus on enhancing its cybersecurity capabilities aiming to compete more vigorously with industry leaders like Microsoft and Amazon

INDUSTRY WORLDWIDE

Global Funding And M&A Picked Up In Q2, While AI Funding Mushroomed (4 minute read)

In Q2 2024, global startup funding reached $79 billion, a 16% rise from Q1 and a 12% increase from Q2 2023, largely due to mega-rounds of $100 million or more. Despite this, overall market conditions remain uncertain

• AI sector funding more than doubled to $24 billion, making up 30% of total investments

• Late-stage funding rose to $36 billion, early-stage funding saw a significant boost, and seed funding remained stable at around $8 billion per quarter

Asia Funding Limps Along, Hits Lowest Level Since 2015 (4 minute read)

Despite a global resurgence in venture funding, Asia faced its worst quarter since 2015, with startups raising $14.6 billion in Q2 2024, down 24% from Q1 and 32% year-over-year. Even AI startups couldn't save the market, raising only $2.5 billion vs North America's $16.8 billion

• Deal volume dropped to 1,511, marking a 15% decline from Q1 and 27% year-over-year

• Late-stage funding fell to its lowest since 2019, totaling $14.6 billion, down 24% from Q1, while early-stage funding dropped 53% from Q1 to $4.9 billion, with deal volume down 7% from Q1

• China's venture funding fell 46% from Q1 to $6.9 billion, while India's rose 27% from Q1 to $3.4 billion

North American Startup Funding Jumped Higher In Q2 (4 minute read)

North American startup funding rose 30% in Q2 2024 compared to Q1, totaling $45.3 billion. The growth was driven by AI investments, which accounted for $16.8 billion, with xAI leading the pack

• Late-stage investments increased to $19.4 billion, while early-stage investments saw the most significant rise to $22 billion, largely due to xAI's $6 billion Series B

• Seed funding remained stable at $3.9 billion

• Despite the rise in funding, deal counts dropped to their lowest in years, reflecting an uneven recovery across sectors

Funding To European Startups Rose In Q2, Exceeding Investment To Asia For The First Time (4 minute read)

In Q2, funding to European startups rose to nearly $16 billion, marking a 31% increase QoQ and a 17% increase YoY. Notably, for the first time in a decade, European startup funding surpassed that of Asia

• The UK led European markets with $6.7 billion, followed by France with $2.9 billion

• AI was the leading industry in Europe, receiving $3.3 billion. Financial Services was the second-largest sector with $3 billion

• Late-Stage reached $7.5 billion across over 100 rounds. Early-Stage reached $6.5 billion across just over 300 rounds. Seed Stage declined to $1.8 billion across 900 rounds, down from $2.3 billion in Q2 2023

Global VC fundraising on track for worst year since 2015 (5 minute read)

The venture industry in the first half of 2024 has seen significant declines from its 2021 peak. This year is on pace for the lowest capital commitments since 2015 and fewer than 1,300 new funds, compared to nearly 4,000 in 2021

• Global exit values hit less than $36 billion in Q2, the lowest since 2016, leading to fundraising challenges

• The industry has collected $80.5 billion in capital commitments from LPs globally this year, on pace for a nine-year low dating back to 2015

• Elevated interest rates and reduced dry powder have stifled dealmaking, despite some large deals

🏦 ECONOMIC SNAPSHOT

The US economy faces a new threat (5 minute read)

The American economy, previously threatened by inflation, now faces a new threat: unemployment. As inflation cools, signs of strain are emerging in the strong jobs market, prompting some economists to urge the Fed to ease its high interest rates to avoid pushing the economy into a recession

• Despite the labor market's current strength, cracks are showing, with the unemployment rate rising for three consecutive months and a slowdown in sectors like leisure and hospitality

• Fed Chair Jerome Powell acknowledges the cooling labor market, suggesting that high interest rates may no longer be necessary

• The fear is that continued rate hikes could turn a balanced job market into one marked by job losses, potentially triggering a recession

Prices fell in June for the first time since the start of the pandemic (6 minute read)

Americans grappling with three years of rising prices have received a glimmer of hope as the latest Consumer Price Index (CPI) data revealed a 0.1% decline from May, nudging the annual inflation rate down to 3% from 3.3%. The more optimistic inflation report has boosted speculation that the Fed could move to lower interest rates, currently at a 23-year high, in an effort to support economic recovery

• Market reactions were mixed, with the Dow slipping 90 points and the S&P 500 wavering into negative territory, while the Nasdaq remained relatively unchanged

• Market confidence in a Fed rate cut has escalated significantly, with CME Group’s FedWatch Tool indicating an 89% probability of at least one rate reduction by the Fed’s September meeting

• These expectations comes amid a cooling US labor market, evidenced by a consecutive three-month rise in unemployment to 4.1% in June

🌱🌎 Impact & Climate Resilience

New concerns arise as funding gap for diverse women and minorities, including black founders, broadens (4 minute read)

Black women small business owners and racially diverse, all-female startup teams face significant challenges in raising capital. In 2023, these teams spent an average of 25 weeks fundraising, a 67% increase from 2022, but raised only $460,000 on average, the lowest amount among all demographics

• In contrast, racially diverse, mixed-gender teams raised $810,000 in 18 weeks, while mixed-gender teams without minority members raised $800,000 in 20 weeks.

• Female teams raised 43% less than all-male teams, with minority all-female teams averaging less than $500,000

• Despite increased attention following the Black Lives Matter movement, venture funding for Black-founded startups fell below $1 billion in 2023, the lowest since 2016

Climate capital needs to seek growth equity funds (4 minute read)

Climate as an investment theme has proven relatively compelling to private market investors. Amid a slowdown in dealmaking and fundraising across asset classes, climate-focused activity has remained robust

• On deal activity, while the wider market declined 27% from 2021 to 2023, climate dealmaking decreased by 15% across the same period

• From 2012-2023, more than 27% of the capital raised for climate investment in North America went to VC

• Large funds account for 58% of the total climate capital raised between 2010-2023

🚀 IPO

Slow and steady is a virtue in this US IPO recovery (4 minute read)

The US IPO market is showing signs of recovery after two challenging years. In the first half of 2024, 78 companies raised over $17 billion through IPOs, marking the best start for traditional IPOs since the record year of 2021, which saw $151.4 billion raised. However, the IPO market of 2024 is more conservative compared to the past

• The Renaissance Capital IPO Index is up 7% this year, lagging behind the S&P 500’s 16% gain

• The three largest IPOs this year are from established, non-tech businesses: Amer Sports, Viking Holdings, and UL Solutions

IPO Rebound Looks to Continue in Second Half of 2024 (3 minute read)

The Nasdaq IPO Pulse Index indicates a significant upswing in IPO activity for the first half of 2024, with 99 IPOs across nine sectors, marking a 25% increase over 2023

• Health Care, Industrials, and Consumer Discretionary sectors are leading this surge, while the Materials and Utilities sectors have yet to see any IPOs

• Most companies have chosen Nasdaq as their listing venue

• 27% of the IPOs this year are unicorns, boasting a market cap of over $1 billion, and 8% have a market cap of at least $6 billion

Shein’s pursuit of London IPO puts UK regulator under spotlight (3 minute read)

Shein’s pursuit of a London listing has placed the UK Financial Conduct Authority (FCA) under intense scrutiny, as the regulator must balance the UK's reputation for strong corporate governance with its appeal as a business hub. Shein, valued at $66 billion, recently filed confidential paperwork with the FCA, signaling progress towards a UK initial public offering (IPO)

• Shein abandoned a plan to list in New York due to US-China tensions and is also considering a Hong Kong listing

• The company has launched a €200 million fund to address fashion waste, part of its efforts to meet ESG standards

• The FCA’s decision on Shein’s listing will reflect its stance on corporate governance and investor protection

🗞️ AI8 VENTURES HIGHLIGHT

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

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Happy reading,

AI8 Ventures’ Research & Investment Team