Week of August 12th, 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: Anduril Industries Raises Big For Defense (5 minute read)

1. Anduril Industries (defense): raised $1.5 billion in a Series F round, matching its previous record for the largest defense tech round. This round, co-led by Founders Fund and Sands Capital, values the company at $14 billion

2. Groq (semiconductor): secured $640 million in a Series D round led by BlackRock, raising its valuation to $2.8 billion. This nearly triples its valuation from its 2021 Series C round

3. Abnormal Security (cybersecurity): raised $250 million in a Series D round, boosting its valuation to $5.1 billion. The San Francisco-based cybersecurity startup, founded in 2018, uses AI to detect threats in email and connected applications

4. Flyr (travel): raised $225 million in equity and $70 million in debt, valuing the company at $900 million. The company develops software for the travel industry

5. IDRx (biotech): raised $120 million in a Series B round led by Commodore Capital, RA Capital Management, and Blackstone. The company, founded in 2022, focuses on precision cancer therapies and has raised $242 million to date

Nearly 30% of VC deals are flat or down rounds (2 minute read)

The boom in startup valuations during the pandemic is now over, with many startups facing reduced valuations. In the first half of 2024, flat and down rounds for VC-backed companies reached a decade-high, making up 28.4% of all deals. While some companies, like Ramp, have rebounded, others, such as Astranis and OneTrust, have faced significant valuation drops

• Down rounds rose from 7% in 2022 to 14% in 2023, while flat rounds rose from around 4% in 2022 to nearly 10% in 2023

• Investors are now favoring startups with clear paths to profitability, leading many companies to cut costs aggressively

• Insider and bridge rounds became common as founders tried to weather the bear market, but many are now accepting lower valuations

US VC Valuations Report (20 minute read)

The U.S. venture market is slowly adjusting its expectations and valuations, with significant interest in artificial intelligence (AI) and machine learning (ML). In Q2 2024, AI & ML accounted for nearly 50% of deal value, driven by large deals. Despite the broad appeal of AI, which has led many companies to pivot to AI-focused narratives, the private markets are still dealing with the aftermath of previous economic challenges

• Rising interest rates have affected public markets, which has trickled down to the late-stage and venture-growth stages, creating liquidity challenges in early-stage investing

• Public market performance has been uneven, while the seven largest S&P 500 companies have gained over 32% year-to-date, the rest of the index has risen just over 7%

• Median valuations appear high, but context is crucial: the median Series A valuation in Q2 2024 was $40 million, matching peak levels from 2022, but reported valuations were less than half of those peak periods

• Median Series B valuations saw a 30% increase from 2023 lows, but remain 30% below 2021 highs

INDUSTRY

US Series A And B Funding Picked Up in H1. What Does That Mean For Funding In 2024? (5 minute read)

In the first half of 2024, Series A and B funding for U.S. companies increased by 34% YoY, totaling $31.5 billion, the highest amount invested at this stage in two years. However, this increase was largely driven by larger rounds, a significant portion of the total ($6 billion), came from a Series B round for xAI. Even without this round, H1 2024 funding still surpassed the half-year funding amounts in 2023

• Despite the overall increase, a bottleneck at the Series A stage persists, especially for seed-stage companies

• The Series A stage saw an uptick in large rounds, particularly those over $50 million, with two-thirds of these rounds in healthcare/biotech and AI

• The top sectors for large Series B rounds were healthcare/biotech, AI, and hardware, including semiconductors and robotics

The AI gold rush is hiding a wider cash crunch for startups (5 minute read)

The current startup fundraising landscape is increasingly challenging, as many companies are struggling to secure new funding and extend their runway. The average time between funding rounds for VC-backed startups has extended to 19 months, up from 15 months during the peak of the funding boom

• Founders are pressured to stretch their existing funds and reach key financial milestones before seeking additional capital, many of them falling short

• AI startups, in contrast, are attracting significant attention and higher valuations, with early-stage AI companies seeing a rise in median valuation from $46 million to $70.6 million between 2023 and early 2024

• The downturn in valuations has led investors to demand stronger evidence of customer traction and revenue growth, resulting in a rise in down rounds and flat rounds

🏦 ECONOMIC SNAPSHOT

The Labor Market Confronts the End of Pandemic-Era Job Hoarding (7 minute read)

As the U.S. labor market shows signs of softening, the trend of "job hoarding" —where employers retain staff despite weakening business conditions due to the pandemic-induced hiring difficulties— might be fading. Recent data suggests this could lead to increased job cuts, further weakening the labor market

• Last month's employment report showed average weekly hours declined, matching the lowest level since the pandemic began

• Initial jobless claims, a proxy for layoffs, have also increased, reaching their highest level in nearly a year at the end of July

• The unemployment rate rose to 4.3% in July, up almost a full percentage point from early last year

Is the U.S. headed for a recession? Here's what the experts say (5 minute read)

In 2024, the Fed seemed to successfully balance controlling inflation and avoiding a recession, but recent economic data has raised concerns about a potential downturn. Despite concerns, most economists still see a continued expansion as more likely than a recession. The recent drop in new unemployment claims has been positive for market sentiment. The Fed is expected to consider rate cuts at its September meeting, which could help alleviate economic pressures

• On August 2, a disappointing jobs report showed the unemployment rate rising to 4.3%, triggering the Sahm Rule and leading to a significant market sell-off

• Despite this, economists like Claudia Sahm believe the U.S. isn't in a recession yet. The increase in unemployment may be due to more people entering the labor force, rather than widespread job losses

• However, economists, including Gregory Daco of EY-Parthenon and Goldman Sachs, note increased risks of a recession due to tightening financial conditions and a cooling labor market

Ranked: The Largest Sovereign Debt Defaults in Modern History (4 minute read)

In July, Ukraine avoided a major default on $20 billion in loans by securing a preliminary debt restructuring agreement with private creditors. This agreement was crucial as Ukraine had suspended international debt payments for the past two years due to the financial strain of war. Ukraine is just one example of the largest sovereign debt defaults since 1983, based on data from Moody’s:

🌱🌎 Impact & Climate Resilience

Climate funds raise more in H1 than for all of 2023 (4 minute read)

The number of climate funds that have held partial or full closes has grown to 24, just two fewer than the number for 2023. The average amount raised for these funds this year is $286 million, up from an average of $202 million in 2023 and $267 million in 2022. The median fundraising amount is $250 million, up from $181 million in 2023 and $70 million in 2022

• The larger numbers for 2024 are largely due to new funds from Bill Gates’ VC firm Breakthrough Energy Ventures, who pushed the year-to-date climate fundraising total to nearly $6.9 billion, up from $5.2 billion for all 2023

US VC female founders dashboard (5 minute read)

Venture capital funding for female founders has stabilized after dropping sharply from 2021 highs. US companies founded or co-founded by women have received a smaller share of total deals, nonetheless, those companies continue to grow their share of capital raised:

• So far in 2024, female-founded VC firms represent 6.4% of VC deal count, while female and male co-founded funds represent 18.7%. In 2023, female-only firms represented 7%, and female and male co-founded funds 19.4%

• As for VC capital, so far in 2024, only female-founded funds got 2% of US capital share, while female and male co-founded funds got 18-.5% (vs 2.2% and 24.1% in 2023, respectively)

🚀 IPO & Exits

The startup landscape for deals is drastically changing (3 minute read)

The tech industry is undergoing significant shifts as PE firms ramp up their activity in the startup ecosystem. With a focus on acquiring startups through acqui-hires —where companies are purchased primarily for their talent rather than their products—, VCs and tech giants are increasingly looking at strategic acquisitions to bolster their capabilities in AI and emerging technologies, This trend is benefiting startups by providing them with immediate cash and potentially strategic advantages through PE’s extensive networks

• At the end of 2023, PE firms held a record $2.59 trillion in cash, creating a significant opportunity for consolidation in a competitive startup landscape

• PE's focus on efficiency and profit can sometimes lead to challenging transitions for startups

• Additionally, acquihires can be complex, with potential frustrations as startup founders adjust to larger corporate environments

• Investors may also face lower returns compared to traditional exits like IPOs

From Skims to Stripe, here are the startups that are likely — or definitely — not having IPOs this year (4 minute read)

The anticipated 2024 IPO boom has largely fizzled out as we move into the second half of the year. While there were four venture-backed tech IPOs in March and April—Reddit, Astera Labs, Ibotta, and Rubrik—factors like the upcoming presidential election and high interest rates suggest that the IPO market won't fully recover until 2025. Despite these challenges, 2024 is still expected to outperform 2023 nonetheless, several high-profile companies have indicated they won't IPO this year:

• Skims: Kim Kardashian's company, valued at nearly $4 billion, might IPO in early 2025

• Chime: After pulling its IPO plans in 2022, the fintech company may go public in 2025, having seen a 25% valuation increase recently

• CoreWeave: The AI company, valued at $7.5 billion after a Series C round, is planning a 2025 IPO

• Sword Health: The startup plans to IPO no earlier than 2025

• Plaid: The fintech company has no plans to IPO in 2024

• Figma: The design unicorn's recent actions suggest it won’t IPO this year

• Stripe: With a recent $65 billion valuation, Stripe might build its valuation further before going public

• Databricks: The AI cloud platform raised $500 million last fall and might go public in 2025

• Canva: The design startup may wait until 2025 or 2026 to go public, likely in the U.S.

Do IPOs Pick Up In Post-Election Years? (2 minute read)

The tech IPO market has been notably slow, leading to speculation that the 2025 U.S. IPO market could see a rebound once the uncertainty of the 2024 presidential election is behind us. Historically, IPO activity tends to increase in the year following a presidential election, as seen after the elections of both Democratic and Republican presidents

• However, broader market cycles also play a role, with factors like the dot-com bubble in 2001 and high-tech valuations in 2021 influencing IPO activity

• So far in 2024, only 32 U.S. venture-backed companies have gone public, making it one of the slowest years for IPOs

• Despite some positive tech stock performances, the overall market conditions don’t fully explain the slowdown

🗞️ AI8 VENTURES HIGHLIGHT

Attention startups! Are you raising or preparing for your next round? 🚀💰🌟

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Check Beyond Survival: Opportunities in Climate Change

It all started in 2010 after a great conference with Mr. Al Gore. I was in Mexico City attending an event where Mr. Gore presented what the climate would look like if we did not act quickly and reduce our carbon emissions. That day, Mr. Gore’s team made his “models” available for everyone to study and play with. He told me that the largest desert in the world would be what used to be Mexico, California, Nevada, Arizona, New Mexico, and Texas, all the way to the State of Mexico. He didn’t know if Mexico City would be a part of it because of its altitude. That day, we walked several miles to our dinner because of the bad news.

Introducing: Climate Resilience Technology

Alpha Impact 8 Ventures is pleased to announce that we are adding a third investment vertical to our thesis: Climate Resilience Technology.

Climate Resilience Technology encompasses digital solutions designed to help communities, businesses, and ecosystems adapt to and recover from the impacts of climate change. We're looking for scalable technologies addressing existing problems caused by climate change.

Our focus areas include:

• AgFinancing: Integrating advanced technologies and tailored financing solutions to improve access to capital for agricultural growth and trade, enhance food security, boost productivity, predict disruptions, and optimize logistics.

• Water Management Systems: Utilizing advanced technologies and financing solutions to address water scarcity and inefficient water use exacerbated by climate change.

• Energy Management and Optimization: Implementing advanced technologies and financing solutions to tackle increased energy demand and grid instability due to extreme weather conditions. This includes smart grids, microgrids, energy management software, and demand response systems that optimize energy use, integrate renewable energy sources, and enhance grid resilience.

• Data, Analytics, and Predictions: Companies that utilize data and advanced analytics to predict and mitigate disruptions and climate-related events. These solutions provide crucial insights and foresight, helping communities and businesses to prepare and respond effectively to climate challenges. Advanced technologies and artificial Intelligence to enhance supply chain visibility, predict disruptions, and optimize logistics ensure continuity and efficiency.

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