Week of March 4th, 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: Fervo Energy And Glean Lead The Way In Another Strong Week (4 minute read)

1. Fervo Energy (energy)- The geothermal developer based in Houston, Fervo Energy secured $244M this funding round led by shale oil and gas firm Devon Energy Corp

2. Glean (AI)-  AI-enhanced work assistant and enterprise search startup based in Palo Alto, California. Secured $200M in a Series D funding round, which valued the company at $2.2 billion

3. FogPharma (biotech) - Raised $145M in a Series E round led by Nextech Invest. The clinical-stage biopharmaceutical startup focuses on developing new therapies for intracellular targets, known to drive disease

4. Oishii Farm (agrtech)- vertical farming startup based in New Jersey, raised $134M in a Series B round led by Japanese telecom giant NTT

5. Alamar Biosciences (biotech)- Raised $128M in a Series C round led by Sands Capital, with plans to secure an additional $28 million within the next 30 days. The Fremont, California-based startup focuses on studying proteins for early disease detection

Three Ways Venture Capital Will Evolve In 2024 (5 minute)

The total venture investment in Q3’2023 was $73 billion, falling more than $25 billion from a year earlier and 65% from the record highs set in Q4’2021. Investor focus has shifted from companies that pursued growth-at-all-costs to those with solid traction and a path to profitability, fewer deals met the new threshold for investor appetite, but the promise of interest rate cuts in 2024 is offering a glimpse of hope:

• VCs will proceed with cautious optimism: There is a shift towards seeing more deals in Series B+ stages, which is getting people excited about a potential recovery, with AI dominating investments  

• Relationships and brand trust are critical: deal sourcing has become less of a priority compared to expanding networks and strengthening existing relationships for dealmaking and fundraising success

• AI combats deal complexity and competition: AI is increasingly being used to consolidate data sources and draw insights, helping firms analyze companies more efficiently and make data-backed decisions on which deals to pursue faster than their competitors

Venture capital funding for metaverse dries up (3 minute read)

Global private equity and venture capital investments in metaverse companies slowed significantly in 2023 as technological setbacks challenged the metaverse’s potential and investors fled to generative AI company deals

• Funding rounds involving 278 metaverse companies raised roughly $530 million in 2023, down 87% from $4.09 billion in 2022, marking the lowest annual investment value since 2018

• Metaverse companies in the US and Canada accounted for over 50% of the funding round total value

• Tech bottlenecks, hardware limitations, and concerns about privacy and security are among the issues challenging the metaverse’s potential

The age of the unicorn is over (7 minute read)

Tech giants in the U.S., including Amazon, Apple, Meta, and Microsoft, have seen their combined market value surge by 70% since the start of 2023, driven by excitement around artificial intelligence (AI). Thousands of smaller AI firms have emerged, contributing to a thriving tech ecosystem. However, despite these successes, America's startup scene hasn't fully returned to its previous exuberance

• Venture capital investment decreased significantly in 2023, attributed partly to the end of the era of cheap money, as well as reduced activity from crossover investors who operate in both public and private markets

• Many unicorns that did list their IPO offering last year, like Instacart and Klaviyo, are trading below their initial prices

• The second exit option, selling to a corporate buyer, is also facing hurdles, with only 698 VC-backed firms being purchased by companies in 2023, down from 1,311 in 2021

INDUSTRY WORLDWIDE

Latin America surpasses China as leading start-up investment market (3 minute read)

LatAm has emerged as the best growth market for start-up expansion, with 37% of venture capital companies viewing the region as the most attractive outside of North America and Western Europe, while only 13% see China as the most compelling

• This marks a significant shift from 2020 when China was viewed as the most attractive region

• Fintech is seen as the hottest investment area in Latin America, followed by climate tech and energy

• Despite optimism, political risk remains a major challenge for startups expanding into Latin America, with 89% of VCs citing it as the primary challenge

Source: WIND Ventures Satrtup Growth Market Survey

The most attractive industries in 2024 for venture capital in Latin America (5 minute read)

Venture capital funds in Latin America granted around US$4 billion in 864 investment agreements in 2023, mainly in early-stage companies. Investments, however, were down 58% from 2022

• The countries that received the most capital were Brazil, Mexico, Colombia, Argentina, and Chile

• According to investors from the most important and active venture funds in LatAm, the most promising industries include: fintech (B2B  model), AI, Agtech, and health tech

• Until now, fintech is one of the favorite industries for venture capital in Latin America. In 2022 alone, this sector received more than US$1.1 billion

• Investors are looking for startups that prioritize profitability over rapid growth, offer innovative solutions with a large market, and have scalable and profitable business models

🏦  ECONOMIC SNAPSHOT

The US economy is so strong that there might not be any rate cuts in 2024 (3 minute read)

After almost 2 years of inflation and higher borrowing costs, investors, economists, and Federal Reserve officials said they expected the economy to soften this year, allowing the central bank to finally start cutting rates

• Nonetheless, those expectations keep getting pushed back: while the market initially expected six rate cuts this year (starting in March), that is now off the table  

• Americans have been struggling with higher prices due to inflation, especially for essentials like rent, groceries, and gas

• Labor market remains resilient,, with unemployment at historic lows (4%) and wage inflation remaining elevated

• Some economists think the Fed won’t cut interest rates at all this year, a sign that inflation isn’t easing is that small businesses expect to raise prices soon and prices paid by manufacturing and services companies are also rising

Immigration is ‘taking pressure off’ the job market and U.S. economy, expert says (7 minute read)

The share of foreign-born workers in the U.S. labor force has been steadily increasing, reaching a record 18.6% in 2023. This growth is seen as beneficial for the American workforce and economy, helping to alleviate economic pressure and contributing to GDP growth

• Despite this trend, the U.S. is currently experiencing a contentious immigration policy debate, with issues such as border security and political tensions surrounding the topic

• The increase in foreign-born workers has helped ease pandemic-era inflation by alleviating worker shortages. However, some argue that immigration has suppressed wages for certain native-born groups, particularly those without a college education

• Overall, immigrants have been significant contributors to job creation and entrepreneurship in the U.S. economy, with higher rates of entrepreneurship (80%) compared to native-born individual

Stockmarkets are booming. But the good times are unlikely to last (6 minute read)

Stock markets worldwide are hitting record highs, with American equities, as measured by the S&P 500 index, reaching their first all-time high in over two years in January, surging above 5,000 points in February. The boom is driven by the hype over AI, with technology giants like Alphabet, Amazon, Apple, Meta, and Microsoft seeing their combined market value surge by 70% to over $10 trillion since the start of 2023

• However, some experts warn that sustaining this growth will be challenging. Valuations are already at high levels, with the cyclically adjusted price-to-earnings ratio (CAPE) hitting 34.3, near its record high

• To reproduce the exceptional returns seen in recent years, American stocks would need to see valuations stretch even further or real earnings grow at an optimistic rate of 6% a year

• The future of AI could play a crucial role in sustaining stock market growth, as many firms are adopting AI tools that promise transformative productivity gains

🧑🏿‍🤝‍🧑🏽 IMPACT & DIVERSITY

Drop In Venture Funding To Black-Founded Startups Greatly Outpaces Market Decline (5 minute read)

Venture funding to Black-founded U.S. startups last year totaled only $705 million, a down of 71% from previous year,  marking the first time since 2016 that the figure failed to even reach $1 billion

• Black-founded startups received less than 0.5% of the $140.4 billion in venture funding all U.S.-based startups received last year

• The numbers stand in contrast to what many VC firms and strategic investors promised nearly four years ago when they pledged more diversity in their venture spending after George Floyd’s murder

• One way to find a solution is to show investors the return potential of startups with diverse leadership, many of them excel in cash efficiency and low burn rate

Wall Street’s DEI Retreat Has Officially Begun (5 minute read)

Wall Street is undergoing a significant shift in its approach to diversity, equity, and inclusion (DEI) initiatives. Goldman Sachs has opened its "Possibilities Summit" program to White students, while Bank of America and Bank of New York Mellon have broadened internal programs to include everyone, and executives are urged to reconsider hard metrics for workforce diversity

• Despite public commitments to diversity, many executives acknowledge the threat of legal challenges and accusations of reverse discrimination

• Recruitment programs, affinity groups, and boardroom diversity initiatives are being reworked or paused

• Wall Street's progress toward diversity remains slow, with senior Black executives still vastly underrepresented

• Some executives are reconsidering tying executive compensation to diversity progress and are advised against race and gender references in recruitment programs

🚀 IPOs

7 Recent and Upcoming IPOs to Watch in 2024 (5 minute read)

Optimism is rising in the U.S. initial public offering (IPO) market after a couple of years of decline. In 2023, there were 128 U.S. IPOs with a total value of $22.6 billion, an improvement from 2022 but still lower than 2021

• Some upcoming and recent IPOs generating buzz include:

  • Reddit Inc. (RDDT) seeking at least a $5 billion IPO valuation

  • Shein facing SEC hurdles for its $45 billion IPO

  • Panera Brands with a $7.5 billion valuation

  • Skims with a $4 billion valuation

  • Birkenstock Holding PLC (BIRK) valued at $8.6 billion

  • Maplebear Inc. (Instacart) (CART) at $9.9 billion

  • Arm Holdings PLC (ARM) at $54.5 billion

• The success of the IPO market in 2024 may depend on factors like interest rates and the performance of upcoming IPOs

🗞️ 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