The Rise of the Underdog Founder 👤⏰📈

April 01, 2024

Week of April 1st, 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

  1. Celestial AI (semiconductors) secured $175 million in Series C funding to enhance its photonic fabric platform, improving AI processing efficiency and energy consumption

  2. Avenzo Therapeutics (biotech) raised $150 million in Series A-1 financing to advance its oncology pipeline, focusing on treatments for metastatic breast cancer and other advanced solid tumors

  3. The Brandtech Group (marketing) closed a $115 million Series C round, leveraging machine-generated content and AI for marketing initiatives

  4. Observe (data integration) raised $115 million in Series B funding to help companies manage data by breaking down silos and making it more useful

  5. Coro (cybersecurity) the platform for small and medium-sized enterprises, secured $100 million in Series D funding to enhance its security offerings

  1. Glacier: San Francisco-based Glacier is developing AI and robotics solutions to automate recyclable sorting and collect real-time recycling data. They raised a $7.7 million round led by NEA and Amazon's Climate Pledge Fund, with a partnership with Amazon to improve traceability and recovery processes for recyclable materials

  2. Chiyo: Detroit-based Chiyo focuses on fertility through postpartum maternal nutrition, offering meals rooted in Eastern food therapy. They raised $3 million led by Bread and Butter Ventures, aiming to build their digital platform and increase distribution through clinics and practitioner communities

  3. Overjet: Boston-based Overjet raised a $53.2 million Series C at a $550 million valuation, led by March Capital. The startup uses AI to interpret X-rays and review dental insurance claims, helping to detect and quantify instances of oral disease with millimeter-level precision

  4. Cloverleaf: Cincinnati-based Cloverleaf raised $7.3 million in a Series A extension led by Advantage Capital. The startup provides automated coaching based on psychology data from behavioral assessments, offering personalized coaching tips to employees directly in their daily collaboration tools

  5. Bear Robotics: Redwood City-based Bear Robotics secured a $60 million Series C financing from LG Electronics. The company offers robot waiters, which are elevated trays on wheels, as a solution for restaurants struggling to secure enough staff post-pandemic

INDUSTRY

Sam Bankman-Fried, the co-founder and former CEO of FTX and Alameda Research, has been sentenced to 25 years in prison by Southern District of New York Judge Lewis Kaplan for fraud and money laundering

  • Prosecutors argued that Bankman-Fried made false promises and misused over $8 billion in customer funds, leading to billions of dollars in losses for FTX investors

  • The sentence, which is significantly less than the 40-50 years requested by prosecutors, serves as a landmark moment in the crypto industry and may set a precedent for future cases involving crypto fraud

  • Bankman-Fried was also ordered to pay $11 billion in forfeiture

Apple is denying any parallels between itself and Microsoft in the 1990s, following a lawsuit from the U.S. Department of Justice. The lawsuit alleges that Apple's practices give it an unfair advantage, similar to Microsoft's situation in the past. However, Apple argues that it does not face the same restrictions it imposes on third parties today

  • The company also points out that its global iPhone market share is around 20%, much lower than the 90+% market share Windows enjoyed

  • The lawsuit focuses on Apple's tight control over the App Store, the Apple Watch's inability to interface with Android devices, and other issues

  • The suit claims that Apple's actions have led to the demise of competitors like Amazon, HTC, LG, and even Microsoft's attempts to compete in the smartphone market

  • Apple argues that the lawsuit seeks to turn iOS into Android and could set a dangerous precedent for government intervention in technology design

Global startup investment in 2023 declined significantly, falling 38% year over year to $285 billion. Despite these challenges, many business leaders remain eager to grow and scale their companies in 2024. More than 50% of founders and CEOs maintain confidence in their ability to grow their companies regardless of global macroeconomic conditions. To prepare your business for scaling, change your mindset from "growth at any cost" to focusing on profitable core products for financial stability:

  • Avoid experimentation and instead, use market downturns as opportunities to refine and enhance your main products

  • In terms of growth tactics, consider optimizing profitability by analyzing cost structures and reducing unnecessary expenses

  • To scale your revenue, diversify your client base and revenue sources. Maintain a balanced portfolio of large clients for each main product and transition smaller clients to a subscription model

CalPERS quarterly report shows they committed a combined $2.1 billion to 13 growth equity and VC funds, with $580 million of that amount going to seven VC funds (32% of its total PE commitments)

  • Growth and Venture is expected to make up around 40% of new PE commitments  

  • Earlier this week, CalPERS’s board of directors decided to boost the system’s PE allocation from 13% to 17%, which will see the system’s overall private markets allocation grow from 33% to 40% of its assets (currently at $484 billion)

  • CalPERS moving towards growth and venture is based on creating opportunity and adding value through growth

🏦  ECONOMIC SNAPSHOT

Federal Reserve Chair Jerome Powell's recent press conference, following the latest FOMC meeting, offered crucial insights likely to influence the stock market for the remainder of the year. Despite concerns about persistently higher and possibly re-accelerating inflation, Powell maintained a dovish stance, suggesting that interest rate cuts are still on the table

  • This approach is seen as supportive of the market's upward trajectory and could sustain positive momentum in stocks

  • Additionally, the Fed's unexpected decision to begin tapering quantitative tightening (QT) signals a further easing of financial conditions, providing additional support to economic growth and stabilizing interest rates further

  • The decision to leave rate cuts on the table and begin tapering QT reflects a shift in the Fed's approach to the 2% inflation target, indicating a focus on stabilizing interest rates and borrowing costs amidst concerns about federal deficits

  • All of this suggests a potential re-acceleration of inflation to lower borrowing costs for the federal government and slow deficit growth

U.S. stocks declined on Monday, the S&P 500 fell 0.3%, the NASDAQ Composite slipped 0.01%, and the Dow Jones Industrial Average was down 0.7%.  Still, U.S. futures rose, fueled by optimism for potential Federal Reserve rate cuts, positive manufacturing data prompted a surge in Treasury yields, impacting stock market sentiment

  • The yield on the 2-year Treasury surged 9 basis points to 4.712% following the unexpected expansion in the ISM manufacturing purchasing managers' index, signaling growth in manufacturing for the first time since September 2022

  • Microsoft climbed 0.6% after announcing plans to offer its Teams app as a standalone product globally,  Alphabet rose over 2% as Jefferies expressed optimism about the stock, Micron Technology surged over 4% following Bank of America's price hike prediction, driven by anticipated demand growth for memory chips in the AI sector

  • These data points align with Fed Chair Powell's recent remarks, suggesting the economy's robustness doesn't warrant immediate rate cuts

The Knight Frank Next Gen Survey reveals interesting trends regarding the expectations of high net worth individuals (HNWIs) regarding their wealth in 2024, categorized by generation and gender. Across generations, there is a clear trend of increasing optimism regarding wealth growth in 2024, with younger generations expressing higher expectations compared to Baby Boomers:

  • Specifically, 75% of Gen Z and 69% of Millennials anticipate wealth increase, contrasting with 52% of Baby Boomers

  • Regarding gender differences, men generally exhibit greater optimism than women, except for Gen Z, where a remarkable 81% of high net worth women anticipate wealth growth

  • Notably, American Millennials are anticipated to become the wealthiest generation ever, fueled by a substantial asset transfer from Boomer parents, particularly in the form of property assets, as housing prices soar

Historically, small- and mid-cap stocks have outperformed large caps over the last 35 years. From February 1989 to February 2024, small caps returned +2,062%, mid caps returned +3,176%, while large caps returned +1,664%

  • While mid caps delivered the strongest performance, generating 86% more than large caps, small caps also outperformed, earning 23% more than large caps over the same period

  • This outperformance is attributed to the unique position mid-cap companies find themselves in, having successfully navigated early-stage growth and being more dynamic than large caps

  • Despite the higher volatility, small- and mid-cap stocks are currently trading at relatively attractive valuations compared to large caps. Their forward price-to-earnings (P/E) ratios suggest a compelling entry point for investors looking to add equity exposure

🧑🏿‍🤝‍🧑🏽 IMPACT & DIVERSITY

Women are reshaping the investing landscape with their increasing wealth and growing investing footprint. Despite being disproportionately affected by the pandemic, women's wealth globally rose from $20 trillion in 2018 to $24 trillion in 2020, with expectations of growing by $5 trillion annually over the next decade

  • More women, particularly younger generations, are investing. In 2023, 60% of women invested in the stock market, up from 44% in 2018. Gen Z women lead the trend, with 71% investing, followed by 63% of millennials, 55% of Gen X, and 57% of baby boomers

  • Despite these gains, men still invest at a larger scale, as evidenced by the potential extra $3.22 trillion of assets under management if women invested at the same rate as men

  • Women outperform men in investment returns, with an average outperformance of 0.4% annually from 2011-2020

  • Women-led businesses are on the rise:  in 2022 women founded almost half (47%) of new businesses in the U.S., an increase from 29% in 2019

  • A 2021 survey by CNBC and Momentive found that 59 percent of Black women do not own any investments, compared to 48 percent of Hispanic women and 34 percent of white women

The "Unicorn Founder DNA Report" by Defiance Capital examined 845 unicorns and 2,018 unicorn founders in the U.S. and U.K. from 2013 to 2023 to identify common traits. The study found that 70% of unicorns have "underdog founders," including immigrants, women, and people of color

  • Female founder representation is rising, with 17% of unicorns having a female founder in 2023. Additionally, 53% of unicorn founders have degrees from the top 10 global universities, and 49% of unicorn CEOs had STEM degrees

  • Interestingly, no VC fund, except SV Angel and YC, got into more than 2.8% (Sequoia) of unicorns, suggesting a fragmented market for unicorn investments at the seed stage

  • While white founders dominate unicorns, 38% of unicorns have at least one non-white founder, only 3% have a black founder, 62% of unicorn founders are immigrants, many hailing from developing countries, underscoring their ability to achieve success despite challenges

  • Common traits in unicorn founders include having no "plan B," a "chip on the shoulder," unlimited self-belief, and having developed a growth mindset from childhood experiences

🚀 IPOs

The EY Global IPO Trends Q1 2024 report indicates a positive start for the global IPO market, with a 7% increase in proceeds. However, the number of global IPOs declined by 7% year-over-year, primarily driven by a slowdown in the Asia-Pacific region. For Q1 2024, the global IPO market saw 287 deals raising US$23.7B

  • Industrials, consumer, and technology sectors were the top three IPO sectors by number, showing significant improvement in after-market performance

  • PE-backed IPOs also saw a resurgence, with a 26% rise in median deal size and post-IPO valuation, indicating strong market presence and momentum for PE firms in the IPO market in 2024

  • The AI vertical is experiencing significant growth in the private realm, with many companies in the seed or early stage of VC rounds, suggesting potential for future IPOs as these firms mature

The AI landscape is experiencing significant shifts, with notable developments in the IPO market and strategic moves by industry giants like Microsoft and Nvidia. Astera Labs' IPO marked a significant win for AI investors, showcasing the sector's potential for substantial returns

  • Nvidia's introduction of its next-generation Blackwell chips has also drawn attention, signaling continued optimism in AI's growth. However, the industry is witnessing consolidation, with major players like Microsoft and Nvidia expanding their reach

  • The rapid pace of fundraising and the capital-intensive nature of scaling AI companies have led to concerns of overfunding and market consolidation

  • As the industry faces increased scrutiny and competition, VCs are advised to approach investments in foundational AI companies with caution

🗞️ 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 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 here

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Happy reading,

AI8’s Research & Performance Team

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