Week of July 29th, 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: Space Tech Startup Astranis Tops List (5 minute read)

1. Astranis (space): secured $200 million in a round Co-led by Andreessen Horowitz and Bam Elevate. Astranis focuses on developing small broadband communications satellites for telecoms

2. Third Arc Bio (biotech): raised $165 million in a Series A round, co-led by Cormorant Asset Management, Hillhouse Investment, and Vida Ventures. The company focuses on developing therapeutics for solid tumors and inflammatory and immunology diseases

3. Imperative Care (medical device): raised up to $150 million Series E led by Ally Bridge Group. The company focuses on developing medical devices for stroke and ischemic diseases

4. Vanta (cybersecurity): the Compliance startup raised $150 million led by Sequoia Capital, valuing the company at $2.45 billion

5. Chainguard (cybersecurity): raised $140 million in a Series C led by IVP, Lightspeed Venture Partners, and Redpoint. The company focuses on software supply chain security

INDUSTRY

Midyear Forecast: Top Trends To Watch In H2 2024 — From Chips To AI Funds (5 minute read)

So far, 2024 in the startup world mirrors 2023, with AI continuing to dominate venture capital discussions. Funding has slightly increased, but uncertainty remains about whether this is a trend or a fleeting moment. Here are Crunchbase's key trends to watch for the second half of 2024:

• Semiconductor startups saw a 25% increase in funding, raising about $5.5 billion in H1 2024. Future big rounds are expected, with Samsung potentially leading a $300 million round for Tenstorrent and Cerebras Systems filing for an IPO

• AI Funding reached $24 billion in Q2 2024, doubling YoY and QoQ. Also, 25% of venture dollars in 2024 have gone to AI, up from under 20% in 2023

• There are new players in the ground, with AI companies like OpenAI, Nvidia, and Databricks launching their own venture funds, supporting ecosystem growth

State of startup compensation, H1 2024 (7 minute read)

The first four months of 2024 have been marked by significant activity within the startup job market, with Carta companies making and losing over 60,000 hires and departures each. Layoffs have decreased by 38% since January 2024 and 62% from January 2023

• Metro areas like Atlanta, Cincinnati, Pittsburgh, and Sacramento have seen rising average pay packages

• Seed-stage startups average 5.3 employees and Series A startups 15.6 employees in 2024, down from their 2021 levels

• Companies that closed Series A rounds in H1’ 2024 had an average of 15.6 employees. That’s 16.3% lower than the average headcount for Series A companies in 2019

The Resurgence Of Crypto VC Investing: Navigating The New Bull Run (7 minute read)

Despite fluctuating bitcoin prices, the crypto VC market is experiencing a significant rebound. Early-stage startups are becoming increasingly attractive to investors, with valuations reaching levels not seen since late 2021. This indicates a shift from speculative cryptocurrency investments to a focus on more sustainable projects like web3, NFTs, and gaming

• In Q1’2024, crypto-focused VC funds raised $2.01 billion globally, surpassing the $1.9 billion raised throughout 2023

• Institutional investors are gradually entering the crypto space, spurred by regulatory clarity and the approval of bitcoin ETFs

• The investment focus is shifting to Web3, NFTs, and the integration of AI with blockchain technology

Cybersecurity investors bullish on deal revival after Wiz, CrowdStrike news (4 minute read)

The cybersecurity sector is experiencing renewed enthusiasm following news that Google offered $23 billion to acquire Wiz, a fast-growing cybersecurity startup valued at $12 billion just a few months ago. Despite reports that Wiz CEO Assaf Rappaport declined the offer to remain independent and pursue an IPO, the news has been seen as a significant validation of the sector's importance

• Deal value in the cybersecurity space increased by 18% in Q2, reaching $3.8 billion across 171 deals

• Exit value has already surpassed the previous year's total, reaching $6.9 billion across 48 deals

• The regulatory environment remains a concern for large acquisitions, as seen with the Adobe-Figma deal collapse due to antitrust issues

INDUSTRY WORLDWIDE

North America’s Lead Widens In Ranking Of Startup Funding By Continent (3 minute read)

VC investment is increasingly concentrated in North America. In the first six months of this year, U.S. and Canadian startups raised $80.1 billion, with $24 billion going to AI ventures. This represents 54% of global funding

• Asia's share of venture funding declined, with startups raising $33.8 billion, a 17% drop from the previous year

• Europe saw growth, with $28.5 billion raised, surpassing Asia in Q2 for the first time in a decade

• Africa, Latin America, and Oceania received less than 5% of global venture funding

Global Funding To Financial Services Slowed Down In The Past 5 Quarters (4 minute read)

In Q2 2024, financial services companies raised $9.7 billion, showing a slight YoY increase and a 17% QoQ rise from Q2 2023's $8.3 billion. However, this is a 75% drop from the $40 billion peak in Q2 2021. For the past five quarters, funding has stayed below $10 billion, reaching the lowest levels since Q1 2017's $9.3 billion

• While all sectors have seen a decline from 2021's peak, financial services experienced a greater fall, with overall global funding down 59% from its peak compared to the sector's 75%

• Still, financial services is the leading sector for unicorns, with over 390 companies listed on The Crunchbase Unicorn Board

• Nigel Morris from QED Investors noted that traditional banks struggle to satisfy customers due to legacy technology, whereas fintech bring innovation and agility, setting the stage for a "David and Goliath" battle in the financial sector

🏦 ECONOMIC SNAPSHOT

Chinese Officials Warn About Tariff Impacts, Ask U.S. Counterparts to Help Mend Ties (5 minute read)

Chinese officials have cautioned a delegation of top U.S. executives visiting Beijing, which included CEOs from FedEx and Micron, that heightened tariffs on Chinese imports could adversely impact their businesses operating in China. Despite pledges to enhance the business environment, recent Chinese policies include stronger measures to protect state secrets, which could complicate operations for foreign firms

• The Biden administration has maintained sanctions imposed by the previous administration, including tariffs and restrictions on advanced technology investments

• New Chinese regulations, including a revised state secrets law, have raised concerns among foreign businesses about the predictability and stability of the operating environment in China 

Economists Think a Trump Win Would Mean Higher Inflation (5 minute read)

Economists anticipate that a return to Trump's economic policies, including broad tariffs and mass deportations, could reignite inflationary pressures, prompting a more restrictive monetary policy than currently expected. This inflationary surge would likely force the Fed to maintain or even increase interest rates longer than planned, contradicting current market expectations for rate cuts:

• Trump’s proposed 10% tariffs and mass deportations are expected to lead to a significant rise in inflation, driving up wages and overall price levels

• Oxford Economics predicts that under a second Trump administration, core inflation could rise by 0.3 to 0.6%, compared to a 0.1 to 0.2% increase under a Democratic administration led by Kamala Harris

Fed Meeting Could Mean a Rate Cut. Or Not (7 minute read)

The Fed is set to hold interest rates steady at its upcoming policy meeting on July 30-31, but signals indicate that rate cuts could be on the horizon as soon as September. Recent data shows inflation nearing the Fed’s 2% target, with the personal consumption expenditures (PCE) price index rising 2.5% in June, down from 7.1% in 2022

• Despite a lengthy period of tight monetary policy, inflation is easing and the economy is showing strength, with a 2.8% growth rate in Q2

• Acknowledging potential rate cuts would align with investor expectations and address political concerns amidst the ongoing presidential race

• Even if the Fed cuts rates, consumers may continue to face higher bills, as the PCE index, used by the Fed, tends to show lower inflation compared to the Consumer Price Index (CPI), which affects household budgets differently

As More People Leave California Over Taxes, They May Face Tax Audits (5 minute read)

California remains the leading state in losing high-income residents, with a net outflow of $23.8 billion in adjusted gross income (AGI). The state’s top income tax rate, which was 13.3% for a decade, has recently increased to 14.4% as of January 1, 2024

• This new rate includes a 1.1% employee payroll tax for State Disability Insurance, affecting those earning over $1 million. Despite proposals to raise the rate to as high as 16.8%, those bills did not pass

• California's 13.3% capital gains tax rate, combined with the federal capital gains rate of 20% and a 3.8% net investment tax under Obamacare, results in a total of 37.1% on capital gains for Californians

• Even after leaving the state, former residents might be subject to ongoing tax assessments if they cannot demonstrate their change in residency

🌱🌎 Impact & Climate Resilience

A New Report On Climate Investments Has Important Insights (5 minute read)

The CREO Syndicate, a large investor group with scores of family office and foundation members, published a report providing valuable insights into private investments in climate solutions:

• Over 60% of critical clean technologies are at the demonstration stage or beyond, indicating they are ready for deployment but need additional capital

• The US climate funding landscape is dominated by venture capital, while Europe relies more on infrastructure funds

• VC tends to concentrate on early-stage technologies and high-risk, high-reward investments, which can lead to an over-reliance on VC funding for stages that require significant capital for scaling and infrastructure, often resulting in underfunded deployment phases and suboptimal returns in the growth stage

🚀 IPO

The IPO Ice Age Could Soon End. Just Look at the Small-Cap Stock Boom (5 minute read)

Wiz's recent decision to forgo a $23-billion acquisition deal with Google in favor of pursuing an IPO highlights a significant shift in the current financial landscape. While the S&P 500 has seen solid returns, early-stage investors have struggled as the IPO market has remained. The small-cap rally in July offers a glimmer of hope for a potential rebound

• The IPO market has been largely inactive since early 2022, with a significant drop in new public listings compared to the peak in Q3 2021

• The recent small-cap rally offers some optimism, potentially improving conditions for early-stage companies and leading to more M&A activity between large and small firms

• Despite an increase in IPOs and deal-making, the market is far from the explosive levels seen in 2021

IPOs Finally Bring Summer Heat With $5.5 Billion in Deals on Tap (5 minute read)

The US IPO market is poised for a significant boost with up to $5.5 billion in new listings this week. This includes a high-profile $4 billion offering by Lineage Inc., a real estate investment trust specializing in temperature-controlled storage and logistics. The market is anticipating this as a potential turning point after a period of subdued activity

• Companies are adjusting their IPO expectations with more modest valuations compared to previous highs. For example, OneStream is targeting a $4.4 billion valuation, down from $6 billion in its last funding round

• Investors are moving from high-profile tech stocks to smaller companies

• Despite a quieter market, US IPOs have raised $22 billion this year, a 60% increase from last year, though still significantly below the record $226 billion in 2021

Bill Ackman’s IPO of Pershing Square closed-end fund is delayed, NYSE says (4 minute read)

Billionaire investor Bill Ackman has delayed the highly anticipated IPO of Pershing Square USA Ltd., which is now expected to price next week on the New York Stock Exchange under the ticker PSUS

• Initially aiming to raise up to $25 billion, Ackman has revised the target to a more modest $2.5 billion to $4 billion

• As of June 30, Pershing Square managed $18.7 billion in assets, with $15 billion held in its European fund, Pershing Square Holdings

• The new U.S. fund will operate as a closed-end fund, offering a fixed number of shares and trading at a premium or discount to its net asset value

Global M&A Report (30 minute read)

The global M&A market has shown a robust recovery in the first half of 2024, tracking 10% to 15% ahead of 2023 in both deal count and deal value. This uptick marks a significant rebound from the previous downturn, driven primarily by corporate acquirers and strategic deals. However, private equity had struggled earlier in the year due to high interest rates and low exit activity, but Q2 2024 has seen a notable recovery for PE, contributing to the overall growth

• In the first half of 2024, cross-border M&A flows between Europe and North America were balanced, reversing a seven-year trend where Europe was the predominant destination for North American acquirers

• All-in borrowing rates in the leveraged finance market have declined by up to 100 basis points over the past year

• This has effectively provided more favorable conditions for dealmaking, despite central banks largely keeping rates steady

🗞️ AI8 VENTURES HIGHLIGHT

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.

AlphaInsights: Venture Capital Report 2023

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 with 2024 commentary 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 with 2024 commentary

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