Week of September 17th, 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: Another Big Week For Biotech And AI (5 minute read)

1. Candid Therapeutics (biotech): raised $370 million to develop T-cell engager antibodies for treating inflammatory diseases. The biotech company, based in San Diego, secured the funding co-led by Fairmount Funds, TCG Crossover, venBio Partners, and Venrock Healthcare Capital Partners

2. Glean (AI): secured $260 million in a Series E round at a valuation of $4.6 billion. The AI-powered work assistant and enterprise search startup, based in Palo Alto, connects with enterprise applications to offer AI-driven tools for building custom apps

3. World Labs (AI): raised over $230 million in total funding, co-led by Andreessen Horowitz, NEA, and Radical Ventures. Co-founded by AI pioneer Fei-Fei Li

4. Superluminal Medicines (AI-biotech): closed a $120 million Series A led by RA Capital. Based in Boston, the company uses AI and big data to develop candidate-ready compounds for drug discovery

5. Forterra (autonomous vehicles): raised $75 million in a Series B to advance autonomous systems for defense and industrial applications

INDUSTRY

Hardware companies dominate a list of promising climate tech startups (5 minute read)

A report by Congruent Ventures and Silicon Valley Bank reveals that the most promising climate tech startups are predominantly hardware-focused, especially in energy, raw materials, manufacturing, and materials sectors

• These startups, averaging seven years old and raising $374 million (though the median is $114 million), face challenges in scaling due to the high costs of commercialization, known as the "valley of death"

• While risky, the potential market for climate tech is already $1 trillion and could double every decade, making successful startups and their investors poised for significant rewards in addressing climate change

Startup Buying Power — VC-Backed Companies Are Hunting For More Startups (5 minute read)

Amid a slowing M&A market, U.S.-based startups are increasingly acquiring other venture-backed companies, making up 39% of all M&A deals involving U.S. startups in 2024—the highest share in over a decade

• By mid-2024, 252 such deals had been completed, surpassing the pace of 2023

• This surge is driven by well-funded unicorns like AlphaSense, LetsGetChecked, and Wiz, which leverage their size, high valuations, and fundraising abilities to pursue strategic acquisitions for growth, innovation, and revenue expansion

• Falling startup valuations have also made acquisitions more attractive, with these companies acting more like public firms, raising large sums to complete deals

SEC turns to litigation to address rulemaking failures (4 minute read)

The SEC has shifted its strategy from rulemaking to litigation following the Supreme Court's June decision to block proposed regulations aimed at increasing transparency in the private funds industry. This marked the end of the SEC's prolonged attempt to enforce rule changes under Gary Gensler, the SEC Chair

• The SEC's blocked rules for private funds aimed to increase transparency by requiring detailed reporting on fees and expenses and restricting preferential treatment for certain investors

• The rules also limited side letters, mandated annual independent audits, prohibited certain fees, and prevented fund managers from limiting their liability for fiduciary breaches

• These changes sought to protect investors and promote fairness but faced strong opposition from the industry, which argued that the rules would impose heavy administrative burdens and stifle competition

INDUSTRY WORLDWIDE

This is how bad China’s startup scene looks now (4 minute read)

In early 2018, VC Mike Moritz praised China's tech industry, noting its "furious" pace and investment opportunities, and suggested Silicon Valley follow its lead. However, the situation unraveled quickly. Between the pandemic, a $55 trillion real estate collapse, U.S.-China tensions, and a government crackdown on tech companies, China’s tech sector may never fully recover

• Despite the government's claim to have completed its clean-up, many entrepreneurs remain hesitant to rebuild, feeling that their money belongs to the state

• Venture capitalists and private equity executives, who once fueled a $50 billion boom, are now discouraged, with many fading from the scene

🏦 ECONOMIC SNAPSHOT

US inflation softens to lowest level since February 2021 as Fed prepares to cut interest rates (5 minute read)

In August, U.S. inflation dropped to its lowest level since February 2021, with the Consumer Price Index (CPI) rising 2.5% annually, down from 2.9% in July, and below the expected 2.6%. Month-to-month, the CPI increased by 0.2%, matching July's growth rate. However, the "core" CPI, excluding food and energy prices, rose by 0.3%, higher than expected

• Inflation, which peaked at 9.1% in June 2022, has steadily fallen, and the Federal Reserve is now signaling a potential rate cut as inflation nears the 2% target

• The Fed chair, Jerome Powell, indicated that inflation is on a "sustainable" path, and the central bank may cut rates soon

Is the US jobs market blue or gold? (5 minute read)

The U.S. labor market is showing signs of weakening despite slower inflation, which now sits at 2.5%. August's job gains (+142,000) were slightly below expectations, and prior summer job figures were revised downward, sparking debate about the strength of the labor market

• Employment trends indicate potential trouble, with government and low-paid part-time jobs driving growth, rather than high-paying private sector roles

• Full-time job attrition is increasing, while job openings are declining, signaling potential future layoffs

• Rising unemployment, driven by labor supply and declining demand for jobs, further raises recession concerns

US Soft Landing Confidence Gets Shaken by ‘Anemic’ Jobs Signal (5 minute read)

In August, U.S. payrolls increased by 142,000, and unemployment stood at 4.2%, both still above pre-pandemic trends. However, revisions to previous months cut 86,000 jobs, adding to a prior adjustment that reduced payrolls by 818,000 for the year through March. Private sector job growth averaged just 96,000 over the last three months, significantly weaker than in the 2010s

• Treasury Secretary Janet Yellen called it a "soft landing," but many economists are concerned about weakening job growth

• The Federal Reserve faces a critical decision in its September meeting, with traders pricing in nearly 240 basis points of rate cuts over time and the debate on whether to cut rates by 25 or 50 basis points

• Fed officials like Jerome Powell aim to stabilize the labor market without deepening the downturn, but concerns remain that rising joblessness could further dampen consumer spending, risking a self-perpetuating economic slowdown

How Do Sectors Perform After the First Interest Rate Cut? (4 minute read)

Federal Reserve Chair Jerome Powell has indicated that interest rate cuts are approaching as the labor market cools with slower job growth and rising unemployment. The benchmark interest rate, currently at 5.25-5.50%, was near zero in 2022. Historically, equities perform better with gradual rate cuts, particularly benefiting sectors sensitive to consumer demand and interest rates. These are the best-performing sectors after a rate cut, based on historical trends from 1973 to 2024:

• Consumer Non-Cyclicals: +7.7 percentage points (pp) above the market, thriving during recessions due to stable demand for essentials (e.g., Procter & Gamble, Walmart, Coca-Cola)

• Consumer Cyclicals: +7.0 pp

• Technology: +5.2 pp, though tech underperforms initially, it rebounds as lower rates help growth stocks by reducing borrowing costs

• Healthcare: +4.5 pp

🌱🌎 Impact & Climate Resilience

These Female Founders And CEOs Raised The Biggest Rounds In 2024 (4 minute read)

Despite women being underrepresented in startup funding—capturing only 3% of U.S. funding in 2023 and less than 5% for women-led companies—several prominent female founders and CEOs have successfully raised significant capital. Notable examples include:

• Molly He, CEO and co-founder of Element Biosciences, which has raised over $680 million, including a $277 million Series D in July, for its DNA sequencing technology

• Katherine Kostereva, founder of Creatio, secured $268 million for her no-code CRM and workflow automation platform, while Kristen Fortney, co-founder of BioAge Labs, raised $294 million to develop therapies targeting aging and metabolic diseases

• Collectively, these companies, spanning sectors from biotech to AI and transportation, have raised over $1.9 billion, highlighting the growing influence of women in the tech and biotech industries

Women-Owned Businesses Are Key To Putting More Money In Women's Hands (5 minute read)

The entrepreneurial landscape is evolving, with women, especially from Gen X, increasingly leading small business ownership. This shift not only signifies personal success but also represents a broader economic shift, empowering women financially and closing gender gaps

• 27% of women started businesses to be their own boss, seeking financial independence

• 20% left corporate jobs due to dissatisfaction with wage gaps and glass ceilings

• 35% of women business owners report feeling somewhat happy, and 33% say they are very happy with their entrepreneurial journey

🚀 IPO & Exits

Outside the AI boom, it’s a buyer’s market for cash-strapped startups (5 minute read)

In 2022, as the market shifted, large acquirers, including Salesforce, scaled back on M&A activity, with deals slowing significantly. However, discounted valuations are now enticing reluctant buyers, as seen in Salesforce’s $1.9 billion purchase of Own, which was sold at a 40% discount from its $3.35 billion Series E valuation

• Many struggling startups are being pressured by VCs to accept such discounted exits to return some capital to their LPs, as 80% of initial letters of intent offer exits below the last funding round

• Buyers often threaten to walk away if founders shop around for better offers

• The median valuation step-up for US unicorn exits has plummeted from 1.46x in 2021 to just 0.56x in 2024. However, AI companies remain an exception, raising capital rapidly without outside advisors

🗞️ 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.

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