Are IPOs About to Stage a Comeback? 🚀

March 11, 2024

Week of March 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

  1. Alumis (biotech): raised $259 million in a Series C round for its oral therapies for immune-mediated diseases

  2. Axonius (asset management): secured a $200 million Series E extension for its cybersecurity and SaaS asset management platform

  3. Sionna Therapeutics (biotech): raised $182 million in a Series C round for its treatments for cystic fibrosis

  4. Rakuten Medical (biotech): raised $119 million in a Series E round for its cell targeting therapies platform

  5. Claroty (security): secured $100 million in strategic

The pace of venture-backed startups selling to other startups has been slowing down, with just over 650 funded startups globally acquired by other funded startups in 2023, the lowest total in three years

  • Disclosed deal sizes have also been smaller, with the median deal size in 2023 around $30 million, down from about $40 million in 2022

  • Large-cap technology companies, including the "Big Five" (Apple, Microsoft, Google, Amazon, and Nvidia), have not been active in acquiring startups in recent quarters, largely due to antitrust concerns, tax issues, and a desire to maintain earnings predictability

  • This leaves startups with limited options, often resulting in acquisitions by other startups, which may not offer top dollar but still provide an opportunity for the acquired company's technology and products to scale

INDUSTRY WORLDWIDE

Digital banks in Brazil and Latin America had a strong performance in 2023, despite challenges such as interest rates and a risk-averse venture capital environment. Neobanks achieved profitability, expanded their customer base, and introduced new products to increase revenue

  • Nubank, for example, reported a net income of $1 billion and 93.9 million customers

  • Other neobanks, like Inter, Mercado Pago, and PagBank, also had a successful year, with Inter surpassing 30 million customers and achieving profitability, Mercado Pago reaching 50 million customers and experiencing significant revenue growth, and PagBank reporting 31 million customers and estimated earnings growth of 16% to 22% in 2024

🏦  ECONOMIC SNAPSHOT

One year after the collapse of Silicon Valley Bank (SVB) on March 10, 2023, the venture debt market has yet to see a new dominant player emerge. SVB's demise led to widespread financial panic among startups, prompting many to turn to non-bank lenders initially, which use LP capital to issue venture debt to VC-backed companies

  • Despite initial expectations, non-bank lenders did not become the primary beneficiaries of SVB's fall

  • SVB's venture debt portfolio, which once comprised 60-70% of the market, got smaller after its collapse, creating opportunities for banks to reenter the venture debt space

  • While non-bank lenders initially saw a surge in performance, they eventually got squeezed out by banks due to capital constraints and risk aversion

  • However, banks have not completely dominated the market, leaving room for specialty lenders, although they have not filled the void left by SVB

Employers in the US added 275,000 jobs in February, exceeding expectations and marking continued growth in the labor market despite high-interest rates. The unemployment rate rose slightly to 3.9% but has remained below 4% for 25 consecutive months, the longest streak since the 1960s

  • Industries such as healthcare, government, and food services saw job gains. However, there has been a slight cooling in the labor market, with revisions showing lower job growth in December and January

  • Economists are closely watching job and inflation data as the Federal Reserve aims for a "soft landing" to normalize price growth and avoid a recession

  • Fed Chair Jerome Powell indicated that interest rates will likely remain steady until at least the summer, and he expressed confidence that the US is not in immediate danger of entering a recession

Bitcoin hit a new all-time high, surpassing $71,000, it currently stands at $71,030. This year, Bitcoin has surged nearly 70%, primarily in recent weeks, driven by significant investments in new spot Bitcoin exchange-traded funds and expectations of a Federal Reserve interest rate cut

  • The approval of 11 spot bitcoin ETFs by the US Securities and Exchange Commission in late January marked a significant moment for the industry after a challenging 18-month period

  • Other major cryptocurrencies such as BNB, Chainlink, and Polygon rose by up to 6%, while Solana, XRP, Cardano, Shiba Inu, and Tron declined

  • The global cryptocurrency market cap increased by 1.6% to around $2.68 trillion, with a total crypto market volume of $132 billion, representing a 41.66% increase

  • Bitcoin's market cap rose to $1.399 trillion, with a dominance of 52.17%

Consumers are increasingly skeptical about the Federal Reserve's ability to achieve its inflation goals in the near future, according to a survey from the New York Federal Reserve. While the outlook for inflation over the next year remained unchanged at 3%, expectations for the longer term increased

  • Over the three-year range, expectations rose to 2.7%, and over the five-year range, expectations jumped to 2.9%, both exceeding the Fed's 2% goal for 12-month inflation

  • Fed Chair Jerome Powell has emphasized the importance of keeping longer-term inflation expectations anchored

  • Despite progress in headline inflation, some economists warn that returning to 2% could be challenging

🧑🏿‍🤝‍🧑🏽 DIVERSITY

Venture capital funding has seen a significant increase overall, but female founders have not seen the same level of growth. In 2023, companies founded solely by women received a mere 2% of the total capital invested in US venture-backed startups

  • From 2008 to 2024, female and male co-founded companies received a total of $253.3 billion with a deal count of 29,057, while female-only founded companies received $37.8 billion with a deal count of 8,869

  • Most deal counts concentrate on software with a total of 7,862 and capital invested of $29.2B

  • In Q1 2024, female co-founded companies have already secured $1.9 billion in capital across 327 deals. This is a notable difference from Q1 2023, which saw a peak in almost 16 years, with $16.7 billion in capital and 712 deals

Women are increasingly investing in startups founded by women. Despite a challenging fundraising environment, women-led venture capital funds made gains in 2023, increasing their share of total fundraising to about 3% of the $107 billion raised by venture funds worldwide

  • Venture capital funding for companies founded by women has been trending up, supported by the rise of incubators for women founders and more funds focused on underrepresented founders

  • Research shows that women-owned startups deliver twice as much per dollar as men, making them attractive investment opportunities

🚀 IPOs

As the stock market continues to soar, there's talk of a potential revival in the IPO market. However, recent market growth has been driven by established tech giants rather than speculative venture-backed startups. PitchBook's data indicates that tech startup performance has significantly lagged behind the broader market, raising doubts about investor enthusiasm for speculative IPOs

  • IPO activity in the past two years has mainly involved larger companies supported by corporate investors, rather than VC-backed startups

  • Additionally, a robust private market landscape offers alternative routes to capital, potentially reducing the need for public liquidity

  • PitchBook has identified 20 potential IPO candidates, based on factors like strong revenue growth, durable business models, capable management teams, and disruptive technology offerings. Some of these include:

    • Northvolt (Climate tech), valuation of $11.8 billion and an IPO probability of 97%

    • Zipline (Supply chain), valuation of $4.2 billion and an IPO probability of 97%

    • Zocdoc (Healthcare IT), valuation of $1.6 billion and an IPO probability of 97%

    • Stripe (Fintech), valuation of $50 billion and an IPO probability of 96%  

    • Generate: Biomediciens (Biopharma), valuation of $2 billion and an IPO probability of 95%

After a slowdown in initial public offerings (IPOs) in Latin America and the Caribbean, markets in the region are gearing up for new listings. Strong candidates from sectors like healthcare, infrastructure, real estate, and technology are expected to go public in the coming month

  • Latin American startups raised $2.5 billion in funding during the third quarter of 2023, with $1.5 billion coming from equity

  • The increase in interest rates, which made fixed income more attractive, led to a slowdown in IPO activity in recent years. However, with interest rates stepping back in 2023, companies have been preparing for IPOs. Approx. 100 companies are reportedly waiting for the right moment to go public

  • Sectors like critical minerals, renewables, and manufacturing are attracting significant foreign investment

Reddit is gearing up for its IPO, aiming for an initial stock price range of $31 to $34 per share, which would value the company at around $5.4 billion if investors opt for the higher end

  • Despite being unprofitable and relying heavily on advertising, Reddit's revenue of $804.0 million in 2023 suggests a multiple of 6.9x to 8x its revenue

  • One of the key reasons for Reddit's pricing strategy closer to Meta than Snap is its focus on AI: earlier this year, Reddit sold $203 million worth of contracts to AI companies for access to its data

🗞️ 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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