Week of December 16th, 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: Fintech’s Big Week (5 minute read)

1. One (Fintech): Walmart and Ribbit Capital are leading a $300 million funding round, One offers installment loans, debit cards, and payment services. This raises its valuation to $2.5 billion, marking Walmart's significant move into financial services

2. Liquid AI (AI): secured $250 million in funding, led by AMD, bringing its valuation to $2.3 billion. The company specializes in liquid foundation models—lightweight AI models requiring less data and compute power

3. Zest AI (Fintech): the startup focuses on AI-driven credit underwriting, raised $200 million in a growth investment round from Insight Partners. This funding will help expand its product offerings and enhance fraud protection and generative AI capabilities

4. Ayar Labs (Semiconductor): secured a $155 million Series D funding round led by Advent International and Light Street Capital. Ayar’s optical data transmission technology aims to improve AI infrastructure's efficiency and reduce power consumption

5. Capstan Medical (Medical Device): raised $110 million in a Series C round led by Eclipse Ventures. The company develops robotic-enabled minimally invasive technologies for treating heart valve disorders, addressing a significant healthcare need

AI And DevOps Led For New Unicorns In November (4 minute read)

In November 2024, six new companies joined The Crunchbase Unicorn Board, bringing the year-to-date total to 100—surpassing 2023's 99. The new entrants, all enterprise-focused, collectively raised $1.8 billion in funding and added $10 billion in value to the board. Five are based in the U.S., while one is headquartered in London. Among them, Eon, a New York-based backup software service, achieved unicorn status in under a year, progressing from seed to Series C funding

• AI: San Francisco-based Physical Intelligence ($2.4 billion valuation) and Writer ($1.9 billion valuation)

• DevOps: LogicMonitor, an IT observability platform ($2.4 billion valuation), and Eon ($1.4 billion valuation)

• Professional Services: Lighthouse, a London-based travel intelligence platform ($1 billion valuation)

• Cybersecurity: Halcyon, an Austin-based anti-ransomware company ($1 billion valuation)

INDUSTRY

VC fund extensions are LPs’ new normal—blame sluggish unicorn IPOs (2 minute read)

Over 40% of unicorns have been in VC portfolios for over nine years, challenging the traditional 10-year fund structure. With unicorns comprising two-thirds of the US venture market and IPOs stalled, VCs are requesting fund extensions to await better exit opportunities, despite the risk of diluting IRR. LPs increasingly expect funds to stretch to 11–12 years, although over half of extended funds fail to return their remaining value by year 10

• Unicorn founders often retain control, further delaying exits, as seen with Stripe, backed for 13 years with a valuation jump from $20M to $70B

• To address liquidity, VCs are turning to secondary markets and continuation funds, though these remain more common in private equity

• Despite challenges, the 10-year model persists, as recent vintages from the 2020–2021 bull market are expected to deliver strong returns

Venture Dollars Pour Into The Intersection Of AI And Cybersecurity (4 minute read)

AI-powered cybersecurity startups are experiencing a funding surge, raising over $2.6 billion this year—nearly tripling last year’s $900 million. Leading the charge is Cyera, which closed two $300 million rounds this year, leveraging AI to secure data and assess risks across complex digital landscapes

• Other notable deals include Abnormal Security’s $250 million Series D, using AI to prevent email attacks and compromised accounts

• Investor enthusiasm for AI in cybersecurity reflects its potential to tackle challenges like data protection, third-party risks, and operational continuity

• Despite broader market caution, AI’s integration into cybersecurity continues to attract significant venture capital interest

🏦 ECONOMIC SNAPSHOT

US economy poised for 'solid' growth in 2025 because America 'doesn't import recessions': BofA (2 minute read)

The U.S. economy is projected to grow at 2.4% in 2025, higher than the 2% consensus forecast, according to Bank of America (BofA) economists. Despite uncertainties surrounding President-elect Donald Trump's economic policies—such as tariffs, tax cuts, and immigration restrictions—BofA believes the U.S. economy is resilient

• These policies could increase inflation and pressure the federal deficit, but the U.S. is well-prepared to weather potential disruptions, such as trade wars, due to its strong performance

• Consumer confidence is at an 18-month high, the unemployment rate is around 4%, and retail sales for October exceeded estimates

• BofA remains optimistic that a full-blown trade war can be avoided, with tariffs likely to pose a greater threat to other regions, particularly those with fewer exports to the U.S. than it imports

'I'm more confident' despite rise in US inflation (3 minute read)

Falling petrol prices, now at their lowest in three years, are providing financial relief to millions of Americans and helping moderate living costs. Despite this, inflation rose slightly to 2.7% in November, up from 2.6% in October, marking the highest rate since July. Gas prices have dropped by 8.1% compared to 2023 but increased by 0.6% from October. Grocery prices also climbed by 0.5% month-over-month, alongside price hikes in used cars, household furnishings, and medical care

• Donald Trump’s recent re-election has begun to shift public sentiment, particularly among his supporters, with surveys indicating increased economic confidence

• However, questions remain about how Trump will deliver on promises to reduce costs, as analysts caution that his proposed tariffs and increased government spending could create a more inflationary environment

• The Federal Reserve lowered interest rates in September for the first time in over four years. Still, officials warn that rates could remain higher than anticipated in 2025 unless inflation outside of fuel eases more significantly

Mexico and Canada weigh potential fallout of Trump tariffs (5 minute read)

US President-elect Donald Trump's threat to impose 25% tariffs on exports from Canada and Mexico has both countries weighing their responses. Trump tied the tariffs to Mexico and Canada's failure to prevent illegal migration and drug trafficking at US borders. Economists warn that these tariffs would severely damage both economies, with Mexico particularly vulnerable, as 77% of its exports go to the US. Canada is also highly reliant on the US, with 75% of its exports directed there

• While Canadian Prime Minister Justin Trudeau supports the US-Mexico-Canada Agreement (USMCA), some provinces suggest a bilateral deal with the US

• Mexican President Claudia Sheinbaum has assured Trump that migration and drug issues would be addressed, hoping to avoid a tariff war

• Although some see the tariffs as a negotiation tactic, others consider them a serious risk, citing Trump’s previous imposition of tariffs on steel and aluminum, which led to retaliatory tariffs from Canada and Mexico

U.S. economy: An exceptional boom or a bubble to burst? (5 minute read)

The narrative of U.S. economic "exceptionalism" highlights its relative outperformance compared to advanced economies like Europe and Japan, with GDP growth of 11.4% since 2019 and projected growth of 2.8% in 2024, as per IMF estimates. Labor productivity in the U.S. has grown by 30% since the 2008-2009 financial crisis, three times the pace of the Eurozone and the UK. However, this success is largely relative, as other economies face stagnation or recession

• Real GDP growth has declined from 4% in the post-war era to 3% before the Great Recession and to under 2% in the current "Long Depression," with consensus forecasts at just 1.9% for 2025

• Current growth is driven by immigration, with per capita growth lagging • Corporate debt is near all-time highs, while bankruptcies in 2024 have surpassed 2020 pandemic levels

• The U.S. stock market, driven by the "Magnificent Seven" companies, accounts for nearly 70% of the leading global index, up from 30% in the 1980s, with valuations at historical peaks

Trump's Mass Deportation Plan Threatens US Economy With 7.4% GDP Loss: Report (3 minute read)

A report by Democrats on the Congressional Joint Economic Committee (JEC) warns that President-elect Donald Trump’s mass deportation proposal could severely harm the U.S. economy. Based on data from the Peterson Institute for International Economics, the report estimates that deporting 8.3 million undocumented immigrants could slash GDP by 7.4% and reduce employment by 7% by 2028, potentially stalling economic growth during a second Trump term

• Undocumented workers, who make up 4.4%-5.4% of the labor force, play critical roles in sectors like construction, agriculture, healthcare, and hospitality

• Mass deportations would exacerbate labor shortages in these industries, including construction, which requires 454,000 workers by 2025 and relies on undocumented workers for up to 25% of its workforce

• Furthermore, the deportations would eliminate $23 billion in annual contributions to Social Security and $6 billion to Medicare, deepening the financial strain on these programs

🌱🌎 IMPACT & CLIMATE RESILIENCE

PitchBook Analyst Note: Climate Tech Software (30 minute read)

Software plays a crucial role in the climate tech sector, complementing established hardware technologies like solar and wind energy. Many startups blend hardware and software to drive decarbonization, though software investments appeal to venture capitalists for their faster scalability, fewer regulatory hurdles, and reduced supply chain challenges. From 2021 to 2023, annual VC investments in climate tech software stabilized at $5.8 billion, but 2024 is set to fall short, with $4 billion raised year-to-date

• Carbon accounting remains a significant segment, with new entrants carving niches to compete with established players offering broad solutions

• Unicorns in this space include Watershed (carbon accounting), Xpansiv (voluntary carbon markets), and KoBold Metals (green mining), while building energy management systems may drive future billion-dollar valuations

• Core Earth data technologies are still in demand, but providers must adopt advanced analytics to remain competitive as innovative startups develop specialized solutions

🚀 IPO & EXITS

PitchBook Analyst Note: GP-Led Secondaries (20 minute read)

GP-led secondary exits have grown substantially over the past five years, with exit values doubling and transaction counts rising from 16 in 2020 to 89 in 2024. These exits are on track to achieve $50–$60 billion in total value this year, accounting for 3.8% of global PE exit counts and 7.2% of global exit values, compared to 0.6% and 2.7% in 2018. Looking ahead, GP-led secondaries are expected to grow into a $70–$105 billion market by 2028, representing 10%–15% of the broader $700 billion secondaries industry and growing at an annual rate of 5.8%–13.2%

• The average GP-led exit value is $838 million, significantly higher than the overall PE average of $699 million

• Over half of these transactions involve companies held for 5–7 years, with a notable 25% occurring after 10 years

• North America dominates the GP-led secondary market, responsible for over half of global activity, while the B2B sector leads with 32.2% of exit counts, though IT exits have risen sharply in 2024

Is The IPO Market Back? Broadcom Shines On Earning (4 minute read)

Broadcom’s stock surged 14% in premarket trading after the company projected a 65% increase in AI sales in Q1 2025, following a 200% rise this year. Meanwhile, ServiceTitan's IPO saw a 40% jump, boosting sentiment in the sluggish 2024 IPO market. Despite broad stock declines on Thursday, with the S&P 500 and Nasdaq Composite down by 0.5% and 0.7%, respectively, individual stocks showed notable movement

• Oil prices climbed above $70, raising concerns about potential inflation, especially as the Federal Reserve prepares to cut rates next week

• The bond market remains concerned about long-term interest rates, signaling potential economic uncertainty

• Overall, with trading volumes expected to slow as the holidays approach, investors are advised to stick to their long-term strategies

Hong Kong set to reclaim top five IPO ranking in 2024, says KPMG (6 minute read)

In 2024, Hong Kong is projected to rank fourth globally in IPO funds raised, reclaiming its position as a top global IPO market. Globally, IPO markets raised $119.1 billion across 1,159 deals, marking declines of 9% in funds raised and 15% in deal volume from 2023. India led in funds raised and deal volume, followed by U.S. exchanges, with Hong Kong and Shanghai in fourth and fifth, respectively

• However, China's IPO activity declined sharply, reflecting a 68% drop in funds raised and a 61% decline in deal volume

• As the U.S. prepares for 2025, the outlook remains cautiously optimistic, driven by strong fiscal measures and the potential for collaboration among stakeholders to stabilize and grow the capital markets

• Uncertainty around trade policies and geopolitics remains a challenge, but a cautiously optimistic outlook for global IPO markets persists

Five M&A Trends To Watch In 2025 (4 minute read)

The M&A landscape in 2025 is set to be shaped by several key trends. Amid these opportunities, companies must prioritize employee and culture integration to manage transition risks effectively and capitalize on M&A benefits. Adaptability and a people-first approach will be essential for success in 2025’s dynamic dealmaking environment

1. AI in Dealmaking: The integration of AI in M&A processes, including automation, target identification, due diligence, and integration, could become transformative. 2025 might mark a pivotal year for generative AI as its practical value emerges from the current hype

2. Economic Stabilization: Improved market conditions, stabilized borrowing costs for mid-sized companies, and strong equity markets are expected to boost deal activity and CEO confidence, providing a solid foundation for M&A growth

3. Geopolitical Factors: While political instability is projected to ease after a year of global elections, ongoing conflicts in the Middle East and Ukraine and complexities in U.S.-China trade relations will require dealmakers to navigate geopolitical risks carefully

4. Regulatory Evolution: Reduced regulatory constraints under the new U.S. administration may drive increased activity in highly regulated sectors such as finance and pharmaceuticals. However, the exact policies enacted will influence dealmaking strategies

5. Mid-Market Surge: A rise in mid-market deals driven by the demand for scale and digital transformation is expected to reshape industries through consolidation and efficiency improvements

🗞️ AI8 VENTURES HIGHLIGHT

Trumponomics 2.0

Following President-elect Donald J. Trump’s victory over Kamala Harris, the financial world witnessed an immediate response. In just one week, the S&P 500’s value surged by $1.9 trillion, pushing stocks to record highs. The U.S. dollar strengthened globally and Bitcoin achieved unprecedented highs.

Wall Street is preparing for more government spending, lighter regulation, bigger deficits, and accelerating growth under a Trump administration and a Republican-led Congress.

Biden’s Economic Legacy

The Biden era was marked by headlines of massive layoffs and a cost of living crisis. The average worker faced double-digit increases in food, energy, housing, and other essential expenses that impacted middle-class families the most and consumed the bulk of household budgets. Despite record highs in the stock market, nearly half of Americans believed the nation was in a recession. Is this Biden’s fault? No. Global supply chain disruptions, stimulus checks, the aftermath of COVID-19 lockdowns, and the ripple effects of geopolitical tensions all contributed to soaring prices. Did Americans blame Biden? Election results suggest they did. Two-thirds of voters believed the economy was on the wrong track.

Hence, Trumponomics 2.0.

Trump’s campaign capitalized on promises of economic revival, pledging to deliver low taxes, low regulations, low energy costs, low interest rates, and low inflation -Trumponomics.

Alpha Insights on Trump and AI in Mexico City

Last week, we hosted our first Alpha Insights event in Mexico City, where we brought together industry experts, investors, and entrepreneurs to discuss the evolving landscape under the new U.S. administration. We dove into how the election of Donald Trump, "Trumponomics," and the transformative role of AI are shaping the future of investments, regulations, markets, taxes, and cross-border opportunities.

Missed the event? We’ve curated the key insights in our Alpha Insights Special Edition: Trumponomics Report. Understand everything VC-related that happened in 2024 and how profit will shift under Trump 2.0

(Trumponomics 2.0 Special Edition starts on page 22)

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?

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