Inflation battlefront and Bitcoin's Resurgence 🏦💰

March 25, 2024

Week of March 25th, 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. Wonder (food delivery): the startup raised $700 million in its latest round, with investors including NEA, GV, Accel, and Bain Capital Ventures. Wonder recently acquired meal-kit company Blue Apron for $103 million and has raised nearly $1.8 billion since its founding in 2018

  2. Mirador Therapeutics (biotech): raised $400 million in a Series A funding led by Arch Venture Partners. The company focuses on precision medicine for chronic inflammation and fibrotic disease

  3. Capstan Therapeutics (biotech): raised $175 million in a Series B led by RA Capital Management. The company focuses on in vivo reprogramming of cells through RNA delivery to combat autoimmune disorders, has raised $340 million since founding

  4. Engrail Therapeutics (biotech): raised $157 million in a Series B co-led by new investors F-Prime Capital, Forbion, and Norwest Venture Partners. The startup focuses on neuropsychiatric and neurodevelopmental diseases and has raised over $220 million since its founding

  5. Clasp Therapeutics (biotech): raised $150 million in a financing led by Catalio Capital Management, Third Rock Ventures, and Novo Holdings. The startup is developing T cell engagers tailored to each patient's immune system to target tumors

INDUSTRY

Nvidia and Amazon Web Services (AWS) have similarities in their core businesses, both emerging from accidental discoveries. AWS realized it could sell its internal services, while Nvidia found its GPU, originally for gaming, was suited for AI processing

  • Nvidia's revenue has grown dramatically, reaching $22.1 billion in Q4 2024, with significant growth in its data center business. AWS, while not experiencing explosive growth, remains a major revenue driver for Amazon

  • AWS, with a run rate close to $100 billion, has seen its growth slow, while Nvidia's growth continues. However, Nvidia faces challenges, such as the potential tightening of the GPU market

  • Analysts expect Nvidia to sustain significant growth, with revenue expected to reach $110.5 billion in its current fiscal year. The company's dominance in the GPU market is expected to continue, although competition from AMD and Intel is increasing

Adam Neumann has submitted a bid of over $500 million to acquire WeWork out of bankruptcy, with a potential increase to $900 million pending due diligence. The financing for Neumann's bid is unclear, as Third Point, previously believed to be involved, has disputed its participation

  • The bid comes after Neumann expressed renewed interest in reclaiming the company from which he was ousted five years ago

  • WeWork filed for bankruptcy in 2023 and has been restructuring with the help of bankruptcy advisors

  • The bid could complicate WeWork's bankruptcy proceedings, particularly its efforts to reject leases in less lucrative markets, which some lessors have opposed

Crypto startups have faced challenges in raising capital over the past couple of years but are now gaining traction, largely due to the rising price of Bitcoin. Bitcoin is seen as a leading indicator of liquidity in the crypto startup and venture sector, and its price movements have historically influenced the startup market, causing booms and busts

  • Bitcoin's price has increased by 38% in the past month to $71,010 and has surged by 168% over the past six months

  • The recent rise indicates startups are having an easier time tapping venture firms that were previously reluctant

  • Fundraising for crypto startups globally rose for the second consecutive month, with startups netting $735 million dollars

  • This is far from April 2022, when crypto startups raised roughly $7 billion dollars

INDUSTRY WORLDWIDE

In 2023, Southeast Asia's consumer-focused startups received the largest share of venture capital deal value, totaling $4.2 billion and replacing software as the region's most-funded sector

  • This increase in funding is attributed to greater internet usage, driven by an emerging middle class and urbanization, leading to increasing demand for consumer products and services

  • Smartphone adoption has also risen significantly, enabling new business models like mobile apps for e-commerce, food delivery, and ride-hailing services

  • Singapore, with its highly developed economy and mature VC ecosystem, attracted most of the region's largest B2C deals, including Shein's $2 billion Series G and Lazada's $634 million investment from Alibaba Group

The United Nations Joint Staff Pension Fund, with assets totaling $77.93 billion, is planning to enter the venture capital and private credit markets, aiming to diversify its investment portfolio from its current focus on public equities and fixed-income

  • This move comes at a time when venture capital fundraising and dealmaking are at historic lows, presenting an opportunity for the fund to capitalize on a "sleepy" market

  • The shift toward private credit aligns with broader industry trends, as investors seek higher yields than those offered by traditional fixed-income investments

The European Union has announced a series of investigations into major tech companies, including Alphabet/Google, Apple, and Meta, under the Digital Markets Act (DMA), which became applicable on March 7th

  • These investigations focus on potential non-compliance with competition rules, specifically regarding Alphabet/Google's rules in Google Play and search results, Apple's rules in the App Store and Safari web browser, and Meta's "pay or consent" model

  • The investigations aim to ensure fair competition and may result in fines of up to 10% of global annual turnover

  • Additionally, Amazon is under scrutiny for its ranking practices on its marketplace, and Microsoft, while not under formal investigation, has been instructed to retain documents for potential future probes

🏦  ECONOMIC SNAPSHOT

The Federal Reserve held its key federal funds interest rate at about 5.5% in March to combat persistent inflation, intending to maintain this rate until it becomes more confident about inflation's sustained track toward its 2% goal. In its latest statement, the central bank's Federal Open Market Committee noted that job gains remain strong and unemployment remains low, while price growth remains elevated

  • The Fed's actions are part of a long-standing monetary practice with a simple goal: by making it more expensive to borrow money, people and businesses will spend less and inflation will fall to a desirable level (2%)

  • Despite a stall in Consumer Price Index increases at around 3%, concerns persist that the Fed may need to maintain higher rates

  • The Fed's decisions are also influenced by political considerations, as it aims to maintain credibility and avoid influencing the general election in November, with June seen as a cutoff date for an initial rate cut

After maintaining interest rates since July 2023, the U.S. Federal Reserve is expected to cut rates, possibly as early as June 2024, in response to easing inflation. A majority of Fed policymakers foresee two or three cuts in 2024, according to the Summary of Economic Projections from the Fed's March 19-20 meeting. However, these projections could change based on upcoming inflation and labor market data

  • The Fed has six remaining meetings in 2024, with scheduled decisions on May 1, June 12, July 31, September 18, November 7, and December 18.

  • The CME FedWatch Tool, which forecasts Fed decisions using fixed income pricing, predicts one to five interest rate cuts in 2024, with three or four cuts most likely, starting in June

  • If inflation continues to ease, most forecasts anticipate the Fed to start cutting rates by the summer, with between two and four cuts expected in 2024. However, if inflation's trajectory is less encouraging or if unemployment weakens, rate cuts could be delayed or smaller than expected

The history of Federal Reserve interest rate policy is like a complex symphony, with each movement influenced by economic conditions, political factors, and global events. Understanding this historical context helps investors anticipate the Fed's future moves and navigate financial markets more effectively

  • For instance, during the COVID-19 pandemic, the Fed swiftly cut interest rates to near-zero levels in 2020, reminiscent of its response to the Great Recession in 2008 when rates were similarly slashed to combat economic turmoil

  • Conversely, during periods of economic expansion, the Fed typically raises interest rates to prevent inflation from spiraling out of control, as seen in the late 1990s dot-com boom and the mid-2000s housing market boom

  • The timeline provides historical examples that illustrate the Fed's role in managing the economy through interest rate policy, responding to various economic challenges, and striving to achieve its dual mandate of stable prices and maximum employment; from Gulf War Recession in the early 1990s to recent rate hikes between 2022 and 2023 in response to rising inflation, increasing the federal funds rate by over 5% points

🧑🏿‍🤝‍🧑🏽 IMPACT & DIVERSITY

The past few years have seen an extreme backlash against the use of environmental, social & governance (ESG) analysis in the US, with politicians and other public figures calling for its abolition. Simultaneously, the macroeconomic environment has made the path to high investment returns more difficult, forcing asset managers to reevaluate their strategic priorities

  • The number of new GPs making public commitments to ESG each quarter via the Principles for Responsible Investment (PRI) rose substantially throughout 2020 and 2021 but made a steep decline in 2022, which continued into 2023

  • On the opposite side, some asset managers are increasing their focus on ESG as a tool for value creation and protection in the challenging macroeconomic environment, other opportunities tied to ESG factors beyond risk mitigation, include environmental and social factors such as capitalizing on consumer sentiment around social values and diversity

  • In 2023, only 137 impact funds had closings, with 45 of them being first-time funds for their managers. These funds invested across private equity (25.8%), venture capital (14.6%), real assets (12.6%), real estate (23.2%), and private debt (20.5%)

  • Among impact fundraising, 59.1% of funds closed were from emerging managers, compared to 48.6% in the broader private market funds

Dealmaking in  technologies around women’s health (femtech), as well as related new products, services, and technologies, is holding up fairly well, yet still undersized compared to other segments and its potential market size, particularly at the expansion stage

  • Femtech verticals remain smaller than could be expected: 2023 saw 35 expansion-stage deals in the US for $599.3M, both deal count and value were the third largest on record. However, the bulk of femtech financing remains concentrated in classic health and wellness areas

  • In 2022, the average pre-money valuation for a femtech company peaked at just under $290 million, indicating increasing investor interest and confidence in the market

  • The femtech market is also seeing signs of maturation, with incremental technological improvements and a broadening of solutions spanning both hardware and software

🚀 IPOs

While occupying very different corners of the technology market, Reddit and Astera were the first notable venture-backed tech companies to go public in the U.S. since Instacart and Klaviyo in September. In the past two years, there have only been 15 tech IPOs in total. That came after a booming market in 2021, when 121 tech companies went public, the most since the dot-com bubble in 2000

  • Morgan Stanley emerged as the big winner among banks, leading both IPOs. The bank collected around $37 million in total fees from the Astera and Reddit IPOs

  • Goldman Sachs, Morgan Stanley's rival, also played a significant role in the Reddit IPO, capturing about 19% of the fee payout

  • In addition to generating fees, IPOs can attract new customers through directed-share programs (DSPs), where high-valued customers or business partners can participate. Reddit's DSP saw participation from tens of thousands of Redditors

Despite initial skepticism, Reddit's stock price has surged, indicating momentum and optimism in the software and technology investment community. Investing in loss-making companies carries risks, but some investors see the potential for significant returns, often driven by social media influence and short-squeeze potential

  • The Reddit IPO brought about some excitement for traders, and now, with RDDT options being traded, it has introduced a new dynamic to the Reddit stock story: Reddit’s option volume topped 8,000 contracts within 45 minutes of trading

  • Reddit shares are up more than 9% this Monday 25th, climbing back above $50 per share after a more than 8% decline during Friday’s session, which saw it close at $46 per share

🗞️ 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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