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| 1 | | Share values of 17 of the 20 largest U.S.-based VC-backed startups that went public in the past 10 years are trading below their initial listing prices, per Crunchbase. The share prices of the three outliers in the group, namely Airbnb, Pinterest, and Snowflake, are trading above their offering prices but still below their respective first-day closing prices. Per Crunchbase, the market capitalization of publicly listed companies in the group has dropped 42% since their initial offering prices. 
EV automaker Rivian — briefly valued at more than Ford and GM combined — lost nearly $54M in market cap since its debut. Rivian's market cap is now $12.5B. Stock prices of Coinbase, which debuted in April 2021 through a direct listing, have slumped 84% from its first-day closing price, wiping off $41B in market cap since its debut. Healthcare plan provider Bright Health Group has witnessed the steepest drop in share prices, losing over 99% of its initial valuation of $11B, with doubts looming over its business continuity. The poor performance of the most prominent startups to debut in the public markets has resulted in losses for IPO investors and VCs that have held onto public stocks of portfolio startups. Sequoia Capital, which became a registered investment advisor (RIA) to hold on to public stocks of portfolio startups, potentially lost $7B in earnings by mid-2022 by not liquidating its stakes in Unity and DoorDash earlier. VCs are typically looking for outsized returns on a few exceptionally well-performing outliers in the portfolio, which outweigh the losses of the entire portfolio of investments. In a bid to capitalize even more on the significant investments, several VCs turned into RIA, allowing them to invest more capital into public stocks. However, the poor public performance of many of the largest VC-backed startups is bringing into question the value of becoming an RIA. 
VCs have invested nearly $1.4T into startups from seed to pre-IPO stages over the past 10 years. In 2021 alone, VCs invested $329.5B into North American startups, higher than the recent valuation of the 20 biggest IPOs in the dataset. Due to the changing macroeconomic landscape of 2022, the stock market slipped into a bear market by mid-year. While the stock market performance is not correlated to VC funding, the plunging stock market performance does have a knock-on effect on the exit prospects of portfolio startups. Due to the plunging stock market prices, coupled with the poor performance of public listings and SPACs, many startups postponed their IPO listings until the markets recovered. Per Pitchbook, the average U.S. exit value by IPO listing declined nearly fourfold, from $2.3B in 2021 to $580M in 2022. SoftBank, another investment firm that is a proponent of holding onto public stocks, is potentially looking at hefty losses. Astris Advisory forecasts a fiscal loss of $30B (4T yen) for the year ending March. The VC firm faces losses due to plunging valuations of portfolio startups, including Oyo Hotels and Klarna. However, its losses compounded due to a drop in the values of public stocks held by the firm, which include Didi Global and Grab Holdings. Despite the losses, the firm's strategy of holding onto publicly listed stocks has helped it recoup losses. Earlier this year, SoftBank liquidated $7.2B of Alibaba shares through prepaid forward contracts. The move reduced its holdings from 13.7% at the end of last year to 3.8%. |     | |
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| 2 | | San Francisco-based VC firm Bessemer Venture Partners is earmarking $1B to back AI startups. Bessemer partner Talia Goldberg told Fortune that the decision came after a recent partner offsite event in Montana held a few months ago. Goldberg adds, "The No. 1 thing that was on every partner's mind in each of their respective categories … from health care to cyber to frontier tech, was how AI is impacting their areas." Goldberg says that Bessemer is looking at firms that are making "really great products that are solving problems or creating new categories that have durable business value and can become category leaders over time." The firm is not raising a new fund for AI startups. Instead, it is diverting funds from its current capital reserves. Due to a flexible fund structure, the firm can invest "even beyond $1B in this area," said Goldberg. Last September, Bessemer raised two funds totaling $4.6B. Last month, Bessemer led an undisclosed Series B round into AI startup EvenUp at a $350M valuation, up nearly four times its previous valuation of $80M 18 months ago. EvenUp's new valuation represents a 40x revenue multiple over its $8.9M annual recurring revenue (ARR) from Q1 2023. 
Generative AI startups have defied the venture funding pullback in Q1 2023. Median pre-money valuations of such startups doubled from $42.5M in 2022 to $90M in Q1 2023, per Pitchbook. The data indicates investors prefer to back up early-stage generative AI startups over late-stage firms. Per another Pitchbook report, the sector is forecasted to grow at 32% CAGR to reach a $98.1B market size by 2026. In March 2023, OpenAI's rival Anthropic raised $300M in funding led by Spark Capital at a pre-money valuation of $4.1B. Lightspeed Venture Partners' Gaurav Gupta reckons investors are pumping money into the sector due to a fear of missing out. Gupta adds that the prices are worth it: "If you jump in too late, and you wait for too much validation, the prices could be even higher." 
The VC funding frenzy into generative AI startups started this year with Microsoft leading "billions of dollars" into OpenAI, reportedly estimated to be $10B. By the end of Q1 2023, VCs had already invested $1.7B across 46 deals, with another $10.68B worth of deals announced but yet to be completed. While Goldberg acknowledged that AI is currently expensive, she said that the advancement of technology and AI models would make the technology cheaper and more accessible over time. Generative AI startups currently have steep costs for training AI models and arranging the compute power required for processing. Sources informed The Information that OpenAI's losses for 2022 totaled $540M. OpenAI's strategic financing from Microsoft included Azure cloud credits to provide compute power for its models. Despite that, OpenAI's CEO Sam Altman estimates that the firm may need to raise as much as $100B in capital in the coming years to keep developing its AI models. | | | |
| 3 | | Today's Funding: - Swiss agtech startup Ecorobotix secured $52M in Series B funding co-led by Aqton PE and Cibus Capital. The round was backed by Swisscanto Invest, Flexstone Partners, BASF Venture Capital, and Verve Ventures.
- Liquidity Group, a fintech startup that offers debt financing to growth-stage startups, raised $40M in equity funding from MUFG and Apollo at a $1.4B valuation.
- New York-based credit card and financial services startup Petal raised $35M in fresh "strategic" funding led by Valar Ventures, with participation from Story Ventures, Core Innovation Capital, and others. Petal spun off its Prism Data business unit into an independent company.
- French biotech firm DiogenX, which is developing insulin-producing beta cells, nabbed €27.5M ($30.2M) in Series A funding from Roche Venture Fund, Eli Lilly, Omnes, Boehringer, Ingelheim Venture Fund, and others.
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| 4 | | Quick Hits: - British VC firm Felix Capital's assets under management reached $1.2B and secured a B Corp certification.
- Prosus NV is planning to liquidate its stake in fintech startup PayU. Sources informed Bloomberg that Prosus could fetch nearly $800M from its exit.
- Japanese VC firm Genesia Ventures held the final close of its third fund at $110M. The fund was backed by Canal Ventures, DBJ Capital, Mizuho Capital, Sumitomo Mitsui Trust Bank, and others.
- Belgium online food ordering startup Deliverect acquired ChatFood, a startup offering a platform with social media ordering, food ordering and payment, and loyalty solutions, for an undisclosed sum.
- Per TechCrunch, Sound Ventures has already invested nearly half of its $240M AI-focused venture fund — announced last week — into three companies: OpenAI, Anthropic, and Stability AI. The firm intended to invest the entire fund in just six companies.
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 | Analyst | | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot. | | This newsletter was edited by Aaron Crutchfield | |
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