Week of November 11th, 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: Slow Week Produces Small Venture Rounds (5 minute read)

1. Physical Intelligence (robotics): the startup is developing versatile "brains" for robots and raised $400M at a $2B valuation, led by Jeff Bezos, Lux Capital, and Thrive Capital. The firm aims to create foundational AI software adaptable across various robot models, avoiding model-specific operating systems

2. Precision Neuroscience (neuroscience): the New York-based brain-computer interface developer raised $93M in Series C funding

3. AmplifyBio (biotech): the Ohio-based drug development company secured $50M from Vitrian for a new manufacturing center

4. Inquis Medical (medical): the firm specializes in thrombectomy systems and raised $40M in a Series B led by Marshall Wace

5. PrognomiQ (Healthcare): the company focused on cancer and complex disease detection tests raised $34M in Series D, led by Seer

Fewer Small And Midsize Venture Funds Are Closing This Year (4 minute read)

The 2024 fundraising environment is challenging for smaller U.S. startup investors, with just 118 sub-$500 million funds raised so far, on track for the fewest new funds in years. This slowdown reflects limited exit opportunities, with a lack of tech IPOs and fewer lucrative M&A deals, compounded by many previous funds still holding undeployed capital

• In 2024, only $13.7 billion has gone to smaller funds, the lowest in recent years, as larger round sizes increasingly favor deep-pocketed funds for mega-deals

• Historically, funds raised in downturns have often outperformed, such as Accel’s 2005 Facebook investment and Andreessen Horowitz’s launch during the Great Recession, leaving investors hopeful about this vintage

INDUSTRY

AI, Data Center And Energy Startups Get Large Capital Infusion In October (4 minute read)

October set a record for global venture capital funding in 2024, reaching $32 billion, with significant contributions from capital-intensive sectors like AI, data centers, and energy. Leading the surge was OpenAI’s $6.6 billion round led by Thrive Capital, which represented 20% of October's total funding, raising OpenAI’s valuation to $157 billion

• AI dominated funding, capturing $12.2 billion (38% of the month’s total), while healthcare/biotech raised $5.6 billion, and sectors like financial services, hardware, and energy each surpassed $4 billion

• Supergiant rounds —investments of $100 million or more— comprised over half of October’s funding, a level of dominance seen only in three months of 2024 so far

• Seed funding remained steady at $2.8 billion across more than 1,000 companies, while early-stage funding rose to $10.9 billion

• Late-stage funding saw a notable increase, doubling month over month to reach $18 billion, though it remained flat year over year

State of Private Markets: Q3 2024 (12 minute read)

In Q3 2024, startups on Carta raised $20.1 billion across 1,254 transactions, a level of consistency that has persisted for the past eight quarters. Seed and Series A activity, however, slowed, with seed investments down 22% and Series A down 26% from the previous quarter. Despite this, median valuations in both stages increased, with seed valuations reaching a decade-high $14.9 million and Series A pre-money valuations climbing 13% to $45 million

• In contrast, Series D deal activity rose significantly, with 43 deals closed, and M&A transactions targeting startups also increased, hitting 170 deals, the highest in over two years

• At Series B, deal activity rose 23% year-over-year, with capital raised exceeding $5 billion, marking a positive trend in later-stage investments

• Geographically, California continued to dominate, securing 52% of all venture capital raised, with the Bay Area accounting for about $7.5-$7.8 billion in new capital each quarter

🏦 ECONOMIC SNAPSHOT

Federal Reserve cuts interest rates by a quarter point (5 minute read)

Last Thursday, the Federal Reserve approved a second consecutive interest rate cut of 0.25%, bringing the benchmark rate to 4.50%-4.75%. This follows September’s larger cut and reflects a less aggressive approach as the Fed seeks to calibrate its policy amid solid economic growth and moderating inflation. The decision was unanimous, and stock markets, particularly the Nasdaq, responded positively

• The Fed's statement highlighted a balanced outlook on achieving employment and inflation goals, noting a slight softening in the labor market

• The economy continues to grow at a solid pace, though GDP growth slowed to 2.8% in Q3

• While the policy shift comes amid political uncertainty, particularly with President-elect Trump’s policies, Chair Jerome Powell stated that the election would not directly influence the Fed’s decisions

• The Fed aims for a “soft landing” by reducing inflation without triggering a recession, with the latest inflation rate at 2.1% (core inflation at 2.7%)

From higher tariffs to lower taxes, will Donald Trump’s economic plan pay off? (5 minute read)

Donald Trump's victory over Kamala Harris in the 2024 election was driven by widespread dissatisfaction with the current economic direction, as two-thirds of voters believed the economy was on the wrong track. Trump’s economic record during his first term was strong, with low inflation, job creation, and low unemployment until the COVID-19 pandemic caused a recession. For his second term, Trump has proposed several economic policies:

• Trump plans to cut corporate taxes to 15% for US-based production and make the 2017 income tax cuts permanent. However, critics warn these tax cuts, estimated at $7.5 trillion over 10 years, may be unaffordable given the national debt

• Trump proposes imposing significant tariffs on foreign goods, including up to 100% on Chinese products. While this could raise trillions in revenue, it might increase consumer prices and reduce household spending power

• Trump opposes Biden's green energy initiatives and favors expanding oil and gas drilling, with plans to halt offshore wind projects. His focus is on energy production rather than achieving net-zero emission

Donald Trump victory bets and strong US economy power dollar gains (5 minute read)

The U.S. dollar experienced its strongest monthly gain in over two years, spurred by strong economic data and increased expectations that a Republican victory in the upcoming election (now a reality) could keep interest rates elevated. In October, the dollar index rose 3.2%, bolstered by signs of economic resilience, including robust September payroll data and higher consumer spending. While markets initially anticipated larger rate cuts by the Federal Reserve, expectations have since moderated, with projections of a quarter-point reduction next week and possibly another in December

• Strong September payrolls and consumer spending data signaled ongoing economic resilience, boosting the dollar's value

• Investors believe Trump’s potential trade tariffs and tax cuts could drive inflation, reducing the likelihood of rapid interest rate cuts

• Futures markets have scaled back expectations of aggressive rate cuts, favoring gradual reductions as economic data remains supportive of the dollar

What Donald Trump's election win means for the world economy (4 minute read)

Donald Trump’s second presidency, coupled with Republican control of the US Senate, will likely lead to significant economic changes, including proposed tariffs of 10% to 20% on all imports and up to 60% on Chinese goods. These measures, alongside plans to cut taxes and reduce immigration, gained support from voters facing rising living costs. Global markets are reacting to Trump’s victory:

• US stocks surged: the S&P 500 rose 2.4%, the Dow Jones gained 3.4%, and the Nasdaq climbed 2.7%, all hitting record highs. However, Treasury yields spiked to 4.5%, signaling concerns about rising government debt

• The US dollar strengthened, causing the Mexican peso to fall by 3% and weakening several European currencies

• Analysts predict Trump's tariffs will significantly strain global trade and impact economies like Germany’s, with long-term challenges for European industries

What just happened? It was the economy, stupid (5 minute read)

Trump inherits an economy that is robust on paper, with high job availability and strong consumer activity, but burdened by issues impacting everyday costs and wealth equity. Trump’s victory was largely driven by the economy, as 72% of voters listed it as their top issue, with Republicans showing nearly 3x more optimism under Trump than Democrats under Biden.

• The economy saw strong performance with 2.8% GDP growth, a 3.7% rise in consumer spending, and monthly job additions averaging 170,000, yet polls show a majority of Americans feel financially strained

• While inflation has slowed, prices are 20% higher than when Biden took office, and gas has dropped from over $5 to under $3 per gallon in some states

• The economy shows resilience with a 4.1% unemployment rate, 3.9% wage growth, and disposable income rising for 27 straight months, making it the envy of G7 nations

🌱🌎 Impact & Climate Resilience

VC investments in impact startups worldwide fall by more than a quarter in 2024 (4 minute read)

Venture capital investments in impact startups are expected to decline by 28% in 2024, reaching $37 billion, compared to $51 billion in 2023. This marks a 60% decrease from the peak of $89 billion in 2021. Impact startups focus on addressing UN Sustainable Development Goals (SDGs) and have seen a downward trend in funding, with this year’s decline outpacing the general 4% drop in overall VC funding

• Climate-focused impact startups, in particular, are struggling, with VC investment in climate tech falling by 30% in 2024, influenced by growing investor interest in AI

• While climate tech is shifting toward debt and private equity financing, social-focused SDGs, like reduced inequalities, remain underfunded, with just $4 billion raised for SDG 10

How the US is cultivating the next generation of immigrant entrepreneurs (4 minute read)

Immigrant founders are driving innovation in the U.S., with 55% of billion-dollar companies having immigrant founders and 64% when including their children. U.S. universities have been critical in nurturing this talent, particularly in sectors like AI and media, where cross-cultural insights lead to disruptive innovation

• Immigrant entrepreneurs like Eric Yuan (Zoom), Michelle Zatlyn (Cloudflare), and Vlad Tenev (Robinhood) highlight the trend of leveraging education in the U.S. to create game-changing companies in digital media, cybersecurity, and finance

• Research shows that two-thirds of top AI companies in the U.S. were founded by immigrants, underscoring their significant role in advancing technology

Pensions’ clean energy strategies are unlikely to waver under Trump presidency (5 minute read)

Following former President Trump’s reelection, some expect more support for traditional energy, though this likely won’t impact pension funds with billions invested in clean energy. Since 2014, pensions and endowments have allocated $892 billion to energy transition projects, with CalSTRS leading U.S. public pensions, committing $846 million across 27 funds

• While Trump’s administration may adjust the 2022 Inflation Reduction Act (IRA), full repeal is unlikely due to bipartisan support

• Rising interest rates and potential tariffs could increase renewable project costs, but CalSTRS plans to maintain its long-term strategy

• Meanwhile, beneficiaries continue to press for fossil fuel divestment, with CalSTRS committing to a net-zero portfolio by 2050

🚀 IPO & Exits

M&A Startup Deal Activity Dips Slightly In Q3 (4 minute read)

Startup M&A activity dipped slightly in Q3, totaling 479 deals globally, down from 500 in Q2, yet up from 430 in Q3 2023. This still represents a 17% decrease compared to Q3 2022, when the M&A market was more robust. Despite the dip, notable acquisitions occurred, including Mastercard’s $2.65 billion purchase of threat intelligence firm Recorded Future

• AI-related startup mergers and acquisitions (M&A) followed similar trends, with 70 deals in Q3. This is a slight decrease from 75 in Q2, but represents a 46% increase year-over-year

• AI now accounts for 15% of total startup M&A, up from 11% last year, highlighting AI's growing impact grows

• Q4 may also see a seasonal slowdown due to year-end holidays, but 2024’s startup M&A activity is still likely to surpass last year’s levels, even if it remains below VC expectations

🗞️ AI8 VENTURES HIGHLIGHT

Alpha Showcase 2024: Thank you Mexico City!

What an incredible experience at the NAA International Symposium and Startup Pitching Competition!

On September 25th, we hosted the Startup Pitching Competition for the NAA’s first-ever International Symposium in Mexico City. The event featured four exceptional early-stage startups, each selected through a rigorous process, showcasing their energy and innovative ideas to an audience of over 100 allocators and industry leaders.

A huge shoutout to Yoel Gavlovski and the entire Quash team, congratulations on your well-deserved victory! The competition was fierce, and every participant truly brought their A-game to the pitches. Thank you all for making this such a memorable event!

About the NAA: Founded in 1999, the New America Alliance is dedicated to advancing the economic development of the American Latino community. We believe that Latino business leaders have a special responsibility to lead the way in building the forms of capital crucial to Latino progress – economic, political, human, and philanthropic. Through coordinated philanthropy and strategic public and private collaboration, we aim to drive investment in our community.

Alpha Insights: 2024 Venture Capital Report

Alpha Impact 8 Ventures is thrilled to share our latest insights into the dynamic world of investments with our 2024 Venture Capital Report.

Last year, 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. Nothing happened.

This year, Warren Buffett’s cash reserves reached a record $276.9 billion as Berkshire Hathaway trimmed its stock holdings in Apple. Some view it as a routine adjustment, while others speculate that Buffett perceives an overheated, overvalued market.

Everyone talks about a soft landing, but warning signs are flashing and the world seems to be teetering on a delicate balance. Is there something we’re missing? Is there an unseen factor at play?

Check Beyond Survival: Opportunities in Climate Change

It all started in 2010 after a great conference with Mr. Al Gore. I was in Mexico City attending an event where Mr. Gore presented what the climate would look like if we did not act quickly and reduce our carbon emissions. That day, Mr. Gore’s team made his “models” available for everyone to study and play with. He told me that the largest desert in the world would be what used to be Mexico, California, Nevada, Arizona, New Mexico, and Texas, all the way to the State of Mexico. He didn’t know if Mexico City would be a part of it because of its altitude. That day, we walked several miles to our dinner because of the bad news.

Introducing: Climate Resilience Technology

Alpha Impact 8 Ventures is pleased to announce that we are adding a third investment vertical to our thesis: Climate Resilience Technology.

Climate Resilience Technology encompasses digital solutions designed to help communities, businesses, and ecosystems adapt to and recover from the impacts of climate change. We're looking for scalable technologies addressing existing problems caused by climate change.

Our focus areas include:

• AgFinancing: Integrating advanced technologies and tailored financing solutions to improve access to capital for agricultural growth and trade, enhance food security, boost productivity, predict disruptions, and optimize logistics.

• Water Management Systems: Utilizing advanced technologies and financing solutions to address water scarcity and inefficient water use exacerbated by climate change.

• Energy Management and Optimization: Implementing advanced technologies and financing solutions to tackle increased energy demand and grid instability due to extreme weather conditions. This includes smart grids, microgrids, energy management software, and demand response systems that optimize energy use, integrate renewable energy sources, and enhance grid resilience.

• Data, Analytics, and Predictions: Companies that utilize data and advanced analytics to predict and mitigate disruptions and climate-related events. These solutions provide crucial insights and foresight, helping communities and businesses to prepare and respond effectively to climate challenges. Advanced technologies and artificial Intelligence to enhance supply chain visibility, predict disruptions, and optimize logistics ensure continuity and efficiency.

Alpha Impact 8 Ventures is disrupting the industry, generating wealth, creating technology, providing access, leveling the play field, reducing systemic barriers, and building a resilient world.

Become part of the our revolution.

Happy reading,

AI8 Ventures’ Research & Investment Team