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| Hey Insiders, Today we are taking a look at the VC funding drop in the U.S. in Q2, LP pressure forcing VCs to liquidate portfolio stakes, and Inflection AI's $1.3B round. We have also rounded up the top late-stage funding rounds of this week. Scroll down for some quick hits, and then let us know what other content you'd like to see in future issues. Karan
p/karan-chafekar | |
| 1 | | U.S.-based startups have secured $27.6B in the current quarter, per Crunchbase data seen by The Information. The current funding total for the quarter represents a 40% drop over the preceding quarter, which closed at $45.2B. Funding is also 55% lower than the same quarter last year. More: - The fundraising pace so far indicates that VC deployment into U.S.-based startups will not be able to match last year's totals by year-end, let alone reach the record-setting figures from 2021.
- Despite the recent dip, investors are optimistic about a recovery in fundraising and exit opportunities in the latter half of the year, buoyed by the recent IPO and M&A transactions.
- Restaurant food chain Cava's successful IPO debut earlier this month.
- In M&A transactions, Databricks acquired AI startup MosaicML for $1.3B, and Thomson Reuters acquired AI legal startup Casetext for $650M.
- The Information reckons that one of the reasons for the prolonged venture funding dip is the reluctance of startup founders to accept valuations.
- Coatue Management estimates that the overall market capitalization of unicorn startups has halved to $2.5T.
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VCs deployed $672M in late-stage and beyond North American startups this week between June 26 to June 30, per Crunchbase data. AI startups raked in 21% of the funding this week. Biotech, data, and augmented reality startups nabbed 19%, 15%, and 12% of the financing, respectively. Here are the top 10 largest rounds announced this week: - New York-based applied AI research firm Runway extended its Series C funding round with an additional $141M from Google, NVIDIA, Salesforce Ventures, and other existing backers.
- Kafka API-compatible streaming data platform Redpanda Data secured $100M in Series C funding led by Lightspeed Venture Partners with additional support from GV and Haystack VC.
- Chicago-based surgical navigation augmented reality solutions provider Augmedics closed its Series D funding round at $82.5M. CPMG led the funding, joined by H.I.G. Capital, Revival Healthcare Capital, Almeda Ventures, and others.
- San Francisco-based clinical-stage medical device company Presidio Medical raised $72M in funding from its Series C round led by Deerfield Management.
- Public cloud infrastructure application deployment startup Fly.io raised $70M in Series C funding at a valuation of $467M. EQT Ventures led the round with participation from Andreessen Horowitz, Dell Technologies Capital, and Intel Capital Corp.
- E-commerce and logistics enablement solutions provider Cart.com nabbed a $60M Series C funding at a pre-money valuation of $1.2B. B. Riley Venture Capital, Kingfisher Investment Advisors, Snowflake Ventures, Prosperity7 Ventures, Legacy Knight, and others provided the funding.
- Nvidia's venture arm NVentures and Novalis LifeSciences co-led a $54M Series D funding round into medical imaging data and AI platform Flywheel. Microsoft, 8VC, Hewlett Packard Enterprise, and others participated in the funding round.
- Gaming studio Mythical Games raised $37M in funding through its Series C1 funding round led by Scytale Digital, with participation from ARK Invest, Animoca Brands, Andreessen Horowitz, Gaingels, WestCap, and others.
- AI-powered threat intelligence, automation, and threat response startup Cyware secured $30M in Series C funding led by Ten Eleven Ventures, with participation from Advent International, Zscaler, Prelude, and others.
- Los Angeles-based food subscription and delivery startup Everytable nabbed $25M in Series C-2 funding led by Dohmen Company Foundation.
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Distribution to paid-in capital (DPI) for VC funds raised in 2016 through 2019 are falling behind the average distributions for pre-2016 funds, per Pitchbook. VC funds with post-2016 vintages have failed to match investors' expectations. As a result, many limited partners are pressuring VC fund managers to provide liquidity, causing them to dilute stakes in portfolio companies in the secondary markets. More: - The lack of exit opportunities through IPOs and M&As is causing VC fund managers to turn to secondary markets.
- Many fund managers are liquidating stakes even at steep discounts to lure LPs back towards new funds.
- Startups are fetching bids at 5x to 12x their annual recurring revenue (ARR).
- A secondary institutional investor told Pitchbook, "If a company raised capital at 100x annual recurring revenue in 2021, then we don't even bid."
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| 4 | | Microsoft, Reid Hoffman, Bill Gates, Eric Schmidt, and Nvidia led a $1.3B funding round for AI startup Inflection AI. The Palo Alto, California-based startup, which is creating a "personal AI for everyone," was valued at $4B at the latest round. Inflection AI intends to use the proceeds to further develop its first AI-powered assistant called Pi, which debuted earlier this May. More: - The current funding brings its total funds raised to date to $1.525B.
- Inflection is working with Nvidia and CoreWeave to build one of the largest AI training clusters comprising 22,000 Nvidia H100 GPUs.
Zoom out: - AI startups raked in $1.7B in Q1, with an additional $10.68B worth of deals announced but yet to be completed, per Pitchbook.
- The latest funding round makes Inflection the second-highest-ranked generative AI startup based on VC funding, narrowly edging out third-placed startup Anthropic, which raised $1.5B to date.
- However, Inflection is still miles away from leader OpenAI, which has raised $11.3B to date, most of which has come from Microsoft.
- Other notable startups in the sector that have raised substantial funding to date include Cohere ($445M), Adept ($415M), Runway ($237M), Character.ai ($150M), and Stability AI (~$100M).
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| 5 | | Asset manager Fidelity Blue Chip Growth Fund has made further valuation cuts to its stakes in Reddit, Discord, and Gupshup. Per the fund's latest monthly disclosure, it revised the value of its stake in Reddit to $15.4M at the end of May, down 7.36% from the previous figure of $16.6M at the end of April. The revised valuation implies a $5.5B valuation for Reddit, nearly half of its valuation of $10B in 2021. More: - Fidelity has marked down its stake in Reddit by 45.4% since leading a $410M Series F round in August 2021.
- Another portfolio company Discord's stake was repriced to $1.7M, down $13.4% MoM and 47% since the initial investment of $3.3M.
- Discord was valued at $15B in September 2021.
- Fidelity's stake in SaaS startup Gupshup dropped from $11M in April to $10.15M in May, down 38% since the original investment.
- Fidelity increased the value of its stake in Twitter from $6.55M in April to $6.86M in May. However, the value is still down 65% over the initial investment value.
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| 6 | | Today's Funding: AI - Canadian AI-powered geological exploration and resource digitization services provider GeologicAI secured $20M in Series A funding from Breakthrough Energy Ventures
- JuliaHub, a Cambridge, Massachusetts-based startup that provides a code-to-cloud platform to accelerate the development of AI and ML models, nabbed $13M in strategic financing from AE Industrial Partners Horizon X, a VC firm formed by AE Industrial Partners and The Boeing Company.
- Causal AI company Causely raised $8.8M from a 645 Ventures-led seed funding round. Existing backer Amity Ventures participated in the funding round joined by Glasswing Ventures and Tau Ventures.
Healthcare - Insurance-based mental healthcare platform Heading Health nabbed $4.5M in Series A funding led by Gron Ventures and Jam Fund, joined by Thiel Capital, Gaingels, and Mystic Ventures.
- Med tech operations revenue acceleration platform MedScout secured $5M in seed funding led by Stage 2 Capital. LiveOak Venture Partners, Alumni Ventures, and a16z's Scout Fund participated in the round.
Mobility - EV charging payment platform Bluedot raised $5M from Y Combinator, Leap Forward, Samsara Ventures, LACI Impact Fund, and others.
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| 7 | | Quick Hits: - Protect your code with help from Docker. Read our white paper to learn how to stay ahead of security threats and build a resilient tech stack.*
- Boulder, Colorado-based accelerator Techstars is looking to raise a $150M fund, per a U.S. SEC filing seen by The Business Journals.
- Reuters reported yesterday that Chinese online fashion retailer Shein had confidentially filed to go public in the U.S.. However, Shein — which has a valuation of nearly $66B — denied the "rumors," per Axios.
- 35% of startups selected to be a part of Y Combinator's latest accelerator cohort are AI businesses.
- Indian seed-stage VC firm Good Capital announced a $50M fund to invest in AI startups. The average ticket size will be around $1.5M.
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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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