Week of August 26th, 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 10 Biggest Funding Rounds: Grafana Labs Raises $270M To Lead Slow Week (5 minute read)

1. Grafana Labs (analytics): raised $270 million in a mix of growth equity and a secondary offering, extending its $240 million Series D from 2022, the company is now valued at $6 billion

2. TickPick (ticketing): secured $250 million from Brighton Park Capital. The New York-based ticketing startup, which offers a no-fee pricing model, sells nearly $1 billion in tickets annually

3. Pathalys Pharma (biotech): the biopharma startup focused on kidney disease treatments, raised $105 million led by TCG Crossover

4. Fortera (climate): raised $85 million in a Series C round to develop low-carbon cement. The climate tech company plans to integrate its technology into existing cement plants, aiming to produce cement with 70% less carbon dioxide

5. Story Protocol (blockchain): secured $80 million in a Series B round led by Andreessen Horowitz. The San Francisco-based blockchain startup addresses IP theft, especially related to AI-generated content, by allowing IP owners to store and license their IP on a blockchain network

After Slowing In 2023, US Median Round Size Again Growing (5 minute read)

In early 2024, U.S. seed and early-stage funding round sizes increased after a decline in 2023. The median round sizes for seed through Series C funding rose by 11% to 30% above 2023 levels, with significant gains in seed and Series A rounds. This growth was largely driven by AI investments, with funding to AI companies doubling in Q2 2024

• Seed Rounds: The median upper quartile remained above $3 million

• Series A: The median round size was $12 million or more, with the upper quartile above $20 million

• Series B: Median sizes were $27 million or more, with the upper quartile at $50 million or more

• Series C: Although down from 2021 peaks, the median round size remained above 2020 levels

INDUSTRY

Q2’24 Venture Pulse Report – Global trends (40 minutes read)

In Q2’24, global VC investment surged to $94.3 billion, the highest in five quarters. The Americas led with $58.3 billion, including $55.6 billion in the US, while Europe attracted $17.8 billion and Asia $17.4 billion. Despite this, VC deal volume, particularly in Europe and Asia, remained sluggish

• Nearly ten companies secured $1 billion+ deals globally, with the US leading in these large raises

• AI continued to dominate VC funding, driven by high costs and development of large language models, with significant investments in companies like CoreWeave and xAI

• The IPO market remained quiet but showed potential with notable IPOs from Rubrik, Ibotta, and Raspberry Pi

• Looking ahead to Q3’24, VC investment is anticipated to remain stable with a potential rise in $100 million+ deals. AI and cleantech will likely stay priorities, while IPO activity may increase slightly before the US presidential election

SEC adopts rule that updates dollar thresholds for venture capital funds (2 minute read)

The U.S. Securities and Exchange Commission (SEC) recently updated the dollar threshold for a fund to qualify as a "qualifying venture capital fund" from $10 million to $12 million in aggregate capital contributions and uncalled committed capital

• This adjustment aligns with the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which requires such thresholds to be indexed for inflation every five years

• The new rule, 3c-7, also sets up a process for future adjustments every five years and will take effect 30 days after its publication in the Federal Register

• Qualifying VC funds are exempt from the Investment Company Act of 1940, which regulates investment companies and their activities

Early-stage VC valuations are more reasonable than they appear (2 minute read)

Early-stage startup valuations have remained stable, with the median US VC pre-money valuation holding at $45 million in H1’2024, similar to 2022 levels. Despite a 60% decline in VC investment, these valuations appear 30% cheaper when accounting for historical trends, signaling the potential for better returns

• Factors like increased demand for early-stage investments and investors paying premiums for AI startups contribute to sustained valuations

• However, as more startups return to the market, future valuations may face downward pressure

• Blue-chip managers are capitalizing on the current environment, convincing institutional investors of the potential 3x to 5x upside in today's less competitive market

LPs harbor valuation concerns, survey shows (2 minute read)

A recent PitchBook survey reveals ongoing mistrust between Limited Partners (LPs) and their private market managers. Two-thirds of LPs believe their VC portfolios are overvalued, and over a third feel the same about their PE investments

• This skepticism stems from the inflated valuations of 2021 and highlights differing valuation methods in PE and VC

• While PE uses rigorous, multi-step valuation processes, VC often relies on the price of the last financing round, which has become less frequent, leaving LPs with fewer up-to-date valuation references

• This uncertainty may be influencing LPs' investment decisions, as PE fundraising fell slightly in 2023 (1.1%), while VC fundraising dropped significantly (47.3%) YoY

🏦 ECONOMIC SNAPSHOT

Time has come for interest rate cut, says Fed chair (4 minute read)

Federal Reserve Chairman Jerome Powell announced that the time has come to start cutting interest rates, but he provided little detail on the pace or extent of the reductions. The Fed has kept its key lending rate at 5.3%, a two-decade high, since last July, despite other central banks beginning to cut rates. Powell emphasized that the Fed is increasingly focused on the job market, confident that inflation, which fell to 2.9% last month, is no longer a major concern

• The U.S. job market has slowed, with the unemployment rate ticking up to 4.3%

• Powell downplayed the likelihood of an imminent recession, suggesting the economy could return to 2% inflation while maintaining a strong labor market

• Analysts now anticipate a potential rate cut of at least 0.25 percentage points at the Fed's next meeting, with Powell's lack of specific guidance leaving room for larger reductions

US markets and European stocks mixed after Powell says 'time has come' for rate cuts (3 minute read)

As UK markets closed for the August bank holiday Monday, global markets showed mixed reactions following Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium. Powell indicated that it might be time to cut US interest rates, and noted that further rate adjustments would depend on incoming data and evolving economic conditions

• On Friday, US markets rose over 1% in response to Powell’s comments, but on Monday the 26th, the S&P 500 fell approximately 0.2%, the Dow Jones Industrial Average gained about 0.1%, and the Nasdaq Composite slipped 0.8%. Nvidia, saw its stock drop 1.8% after an analyst rating

• European markets were mixed on Monday: Germany’s DAX was nearly flat, France’s CAC 40 rose 0.2%, and the pan-European STOXX 600 remained unchanged

• In Asia, major indexes diverged: Japan’s Nikkei fell 0.7% as the Yen strengthened and the Bank of Japan hinted at potential rate hikes, while Hong Kong’s Hang Seng rose 1.1%

Buckle up for the Stock Market's Worst Month of the Year (4 minute read)

Jerome Powell's speech at Jackson Hole confirmed the Fed's intention to cut interest rates, but historical trends suggest a potential stock market sell-off. September, historically the weakest month for stocks with an average decline of 0.7%, has seen recent years with losses of around 4-9%

• Despite a 3% spike in the Russell 2000 and gains in homebuilder stocks, overall market reaction was muted

• The Fed's expected 25-basis-point rate cuts in September, November, and December might not prevent a downturn, with upcoming economic data, such as the August jobs report, being crucial for further policy direction

Nvidia earnings is an 'an underpriced risk' for markets: BofA (2 minute read)

Bank of America (BofA) is warning that Nvidia's upcoming earnings report, scheduled for August 28th, presents an "underpriced risk" for the broader market. Analysts at BofA point out that Nvidia’s results can significantly impact equity indices, and any negative performance could have a broad effect

• BofA recommends using S&P 500 put spreads for better protection against market shocks, as these options are relatively cheaper compared to Nvidia-based hedges due to recent volatility and price dynamics

• This recommendation is based on the S&P 500's historical vulnerability to shocks and the current "fastest ever VIX retracement and steeper skew," making S&P options more cost-effective

• BofA also notes that while the S&P 500’s growth has been driven by major tech companies, earnings are starting to broaden across other sectors

🌱🌎 Impact & Climate Resilience

US leads the way in Climate-tech funding, as China falls behind (2 minute read)

Climate-tech companies in the US raised $6.7 billion in H1 2024, a decrease from $9.8 billion in the first half of 2023. However, this still surpasses investments in China, where $5.1 billion was raised in H1 2024, down from $14.5 billion during the same period last year. Canada ranked third, with $1.8 billion invested in H1 2024

• US importance in the sector is no surprise, given the outsized role US climate policy has had on investment, particularly the Inflation Reduction Act

• Also, tax credits for technologies such as batteries, hydrogen, and carbon capture as well as grants and loans from the US Energy Department have helped investors gain confidence in these industries

• Globally, funding for climate-focused technologies fell by nearly 50% compared to the same period last year, shrinking to $22 billion

The Climate Venture Capital Story Has A Major Hole Right Now (5 minute read)

Venture capital in climate solutions is showing signs of recovery, with early-stage investments increasing from $2.5 billion in H2’2023 to $3 billion in H1’2024. This uptick is partly driven by the anticipated impact of the Inflation Reduction Act

• However, significant challenges remain, including political uncertainty, rising anti-ESG sentiments, and unclear macroeconomic conditions

• A major concern is the sharp decline in exit opportunities: acquisition activity plummeted by 70% in Q1 2024 compared to previous periods

• While investment in clean energy continues to grow, the limited number of successful exits, particularly through IPOs or acquisitions, poses a substantial risk to sustained capital inflows

Most Women Business Owners Make Less Than $50K A Year, We Need Change (4 minute read)

Women entrepreneurs are making significant strides in business, but most still earn less than $50,000 annually, with only 12% breaking the six-figure mark. This income gap is driven by several factors: limited access to capital due to gender bias, undervaluing their services, balancing business with family responsibilities, fewer networking and mentorship opportunities, and ongoing gender bias in the marketplace

• Addressing these issues is crucial for economic empowerment, breaking the cycle of inequality, and maximizing the potential of women entrepreneurs

• Solutions may include improving access to capital, providing targeted education and training, expanding mentorship and networking opportunities, and challenging marketplace biases

The best, and worst, American cities for upward mobility (5 minute read)

A recent study by Raj Chetty from Harvard University highlights that economic mobility for children born to low-income families in major American cities has worsened since 1978. Of the 50 most-populous cities, those born in 1992 have lower salaries by age 27 compared to those born in 1978, adjusted for inflation

• Brownsville, Texas, saw a 6.7% increase in earnings for this group, benefiting from growing economic opportunities for its Hispanic population. In contrast, Philadelphia saw a 12.7% decrease

• Economic mobility for poor black children has generally improved, with incomes rising 25% in Austin, Texas, while poor white children’s incomes declined by 1.2%

🚀 IPO & Exits

VCs are so eager for AI startups, they’re buying into each others’ SPVs at high prices (4 minute read)

VCs are increasingly purchasing shares of late-stage startups, especially AI companies, on the secondary market using SPVs. Some SPVs are being sold at premium prices, with markups as high as 30%, benefiting the VCs selling them but posing significant risks for buyers

• Buying into an SPV means owning a stake in the vehicle holding the startup's shares, rather than direct ownership in the startup itself

• This setup limits the buyer’s access to financial information, voting rights, and influence over the company

• With AI startups experiencing inflated valuations, investing in high-priced SPVs is a risky bet, as the startup would need to grow by more than 30% for the investor to see a profit

🗞️ AI8 VENTURES HIGHLIGHT

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

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Competing startups will have exactly five minutes to pitch their company on stage, followed by a five-minute Q&A session with our expert VC panel. Voting will be open to the public, whoever gets more votes wins. The winner can get up to a $500k investment (after proper due diligence), apply here: https://2cvhe2rlbpb.typeform.com/to/B14c3Bsj?typeform-source=lnkd.in 

For more information contact us at: [email protected] 

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