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| Hey Insiders, Today's newsletter covers: - 📉 The slump in AI seed funding
- 🌆 Contraction in West Coast's share of VC funding
- ✂️ Some investment firms trim tech stakes
If you find this newsletter useful, please share it with your friends and colleagues. Thank you. Karan
p/karan-chafekar | |
| 1 | | The value of AI seed-stage deals dropped from $295M in March to $179M in July, per Pitchbook data seen by Fortune. The shift suggests that the investors' fervor for the AI sector is starting to drop off. Early-stage investors will likely adopt a more cautious approach in the future, which may impact Series A stage startup valuation and funding rounds, per FPV Ventures' co-founder and managing partner Pegah Ebrahimi. More: - Investors are beginning to question the competitive advantages that AI startups would have over their competitors as the technological parity and open source offerings level the playing field.
- "I think investors are growing a little bit fatigued with the seed investments they made two to six months ago that are almost going to zero overnight due to a single tech release, or what have you…because so many of them are OpenAI wrappers," says Redpoint Ventures' Meera Clark.
- She adds AI seed companies have "been priced at an extreme premium with multiple term sheets in certain situations, minimal or limited diligence done, and a lot of expectations for what these companies will grow into moving forward."
- She believes that VC considered 75% to 80% of AI startups to be investable three to four months ago.
- As the hype around the AI sector settles, that number is now cut in half.
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| 2 | | The share of VC funding secured by West Coast startups experienced a significant contraction, shrinking to 44% in Q2 2022, per Carta. The share was the lowest on record and underlying a continued declining trend. 
What the numbers say: Startups in the West raked in 64% of the entire capital deployed across the U.S. in early 2018. California retained the top spot within the West region, raking in 35.99% of the capital deployed. Colorado startups received $1.22B in Q2, making up 2.23% of the total share. Washington took the third spot at 1.99%. What happened: The Northeast, South, and Midwest region startups are eating into the West's market share of VC capital. Each of the regions witnessed a growth in share capital. Northeast, South, and Midwest region startups raked in 30%, 20%, and 6% of the funding, respectively. Where to see the impact: The South region doubled its share of startup capital from 10% four years ago. The rise in funding for Texas and Florida-based startups has helped propel VC funding in the South region to an all-time high. Q: Do you think other regions will be able to topple the West region from the top spot over the next five years? Let us know here. | | | |
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| 3 | | Tiger Global Management, Maverick Capital, and Lone Pine Capital reduced their tech stock holdings by 5.2%, 3.5%, and 2.4% in Q2, respectively. The move suggests that investment firms are liquidating their tech stocks to take advantage of the recent rally in stock prices in a bid to rebalance portfolios. While some are reducing their exposure, many are ramping up their tech stocks, with tech stock exposure accounting for almost a quarter of the equity market, up 1.5% over the previous quarter. More: - Coatue Management reduced its stakes in Nvidia, Meta Platforms, Tesla, and Netflix, while increasing its Amazon holdings by almost double and Microsoft shares by 68%.
- Meanwhile, Whale Rock Capital Management and Third Point increased their tech stock exposure by 5% and 7.9%, respectively.
- Viking Global Investors increased its tech allocation to 3.2% by purchasing shares of Microsoft, Nvidia, and Datadog.
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| 4 | | Better.com's shareholders approved its upcoming SPAC merger with Aurora Acquisition Corp. Per Aurora's CEO Arnaud Massenet, "At least 65% of the outstanding ordinary shares of the company entitled to vote at this meeting have voted in favor of (the) proposal." SEC filings show that Better.com is set to go public around Aug. 22, 2023. More: - The newly merged entity is set to receive a $550M capital infusion from SoftBank.
- SoftBank will need to shell out another $100M if existing investor Novator exercises its $100M option, which could give Better.com an additional $200M in capital.
- The digital mortgage lender was earlier targeting a valuation of $7.7B at the SPAC merger, slightly higher than its initial estimates of $6B when it announced the SPAC deal in May 2021.
- Better.com faced several roadblocks during its SPAC merger process, including an exodus of executives, layoffs, a housing market slump, and negative publicity.
- The New York-based startup has raised $905M to date, including a $200M Series D round from L Catterton in November 2020.
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| 5 | | AI startup Modular is reportedly targeting a $600M valuation at the upcoming Series A funding round. The startup is in talks with several investors, including General Catalyst. More: - Modular was co-founded by CEO Chris Lattner, who previously co-created the Swift programming language at Apple, and chief product officer Tim Davis, known for leading Google Cloud's machine learning application programming interfaces.
- The Palo Alto, California-based startup leverages software advancements to boost the performance of AI training GPUs by combining popular AI frameworks using modular components.
- Holger Mueller of Constellation Research Inc. told SiliconANGLE, "Modular has built a software layer for building AI models that can be trained and run without Nvidia's chips. Instead, they can run on regular silicon CPUs from AMD and Intel."
- The firm last raised $30M in seed funding in June 2022.
- GV led the round with participation from Greylock, SV Angel, and The Factory.
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| 6 | | Today's Funding: AI - Conversational AI startup Voiceflow secured $15M in fresh funding led by OpenView Venture Capital.
Biotech - Bedford, Massachusetts-based interventional radiology liquid embolics startup Instylla bagged $30M in fresh funding led by Delos Capital. Excelestar Ventures, Ascension Ventures, Catalyst Health Ventures, and other investors participated in the round.
Energy - Global critical minerals investment company TechMet raised $200M in equity funding from Lansdowne Partners, S2G Ventures, DFC, and Mercuria Energy.
- Solar energy startup Carlux closed its Series A3 funding led by Temasek at $12M. The funding brings the total raised under the Series A round to $24M.
- Low-cost hydrogen electrolyzer technology maker Advanced Ionics closed its Series A funding round at $12.5M. Bp Ventures led the round with additional backing from Clean Energy Ventures, GVP Climate, and Mitsubishi Heavy Industries.
Fintech - Digital wallet-based purchasing and reimbursement fintech startup ClassWallet received $95M in growth funding led by Guidepost Growth Equity, with participation from Lazard Family Office Partners and Education Growth Partners.
Healthcare - Pet pharmacy and wellness solutions startup Mixlab raised $10M in additional funding led by Vanterra Ventures.
Transportation - Global transit-tech company Zeelo secured a Series A extension funding worth $14M from FlatzHoffmann and IREON Ventures.
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INSIDE VENTURE CAPITAL LEADERBOARD (30 DAYS) |
 | Analyst | | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot. | | This newsletter was edited by Aaron Crutchfield | |
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