Inside Startups

For December 29, 2023

Here’s a look at today’s Startups briefing.

💰 Crowdfunded startups have a higher survival rate, says CCA survey.
🤝 Cisco acquired open-source cloud networking software startup Isovalent.
🌱 Climate tech funding is expected to remain strong in Europe in 2024.

Thank you.

A new report published by Crowdfund Capital Advisors (CCA) shows that crowdfunded startups have a higher survival rate among all startups. Only 17.76% of startups that raised capital via crowdfunding campaigns have gone out of business, claims CCA. The survival rate is significantly higher compared to the 50% survival rate among businesses within five years after launch, as reported by the Bureau of Labor and Statistics.

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"Even though startups are traditionally seen as higher risk, those funded via Regulation Crowdfunding are defying expectations. The data indicates that these startups have a better chance of survival than many of their counterparts in the traditional business world," per CCA's principal Sherwood Neiss.
Amongst crowdfunded startups, 81.6% of male-founded and 90.4% of female-founded crowdfunded startups remain operational.
Minority-led startups had a higher survival rate (87.8%) compared to companies founded by non-minorities (82%).

Due to the venture funding slump and a lack of exit opportunities, VCs turned their focus to early-stage startups in 2023. Biotech and AI sectors dominated the North American early-stage funding, raking in 41% and 22% of the mega funding rounds of more than $100M, per Crunchbase data. Aerospace, healthcare, and cloud computing startups nabbed 7%, 6%, and 3.8% of the financing, respectively.

Here are the top five largest rounds announced this year:

Adept AI, a generative AI startup, raised $350M as part of its Series B, which sets its post-money valuation at $1B. General Catalyst and Spark Capital led the financing.
RNA medicines biotech startup ReNAgade Therapeutics raised $300M in Series A funding led by MPM BioImpact and F2 Ventures.
Novi, Michigan-based electric car battery startup Our Next Energy raised $300M in Series B funding led by Fifth Wall and Franklin Templeton.
Sierra Space, a subsidiary of aerospace contractor Sierra Nevada Corporation, announced it raised $290M at a $5.3B valuation. The round was led by Japanese companies MUFG, Kanematsu, and Tokio Marine.
Biotech firm Orbital Therapeutics closed its ARCH Venture Partners-led Series A round at $270M. A16z's Bio + Health division participated in the current round along with another previous backer, Newpath Ventures. New investors joining the funding round include the Abu Dhabi Growth Fund, Invus, Casdin Capital, Moore Strategic Ventures, and others.

Several biomedical startups are using AI to test cancer drugs' efficacy, provide accurate prognoses, and personalize patient treatment. AI tools are helping startups predict potential drugs for clinical studies. However, AI tools still require human intervention as "with machine learning, it's easy to get off on the wrong foot," per Terri Shieh-Newton, a law firm member advising life science startups.

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Venture capitalists are bullish about AI use cases in biotech and are investing heavily in the sector.
Notable AI-powered biotech startups that have raised significant funding recently include AI-powered prostate cancer prognosis startup Artera, AI-driven biology and medicinal insights startup Enable Medicine, and drug discovery and medication response prediction firm Vivodyne, which bagged $90M, $60M, and $38M, respectively.

Networking, cloud, and cybersecurity solutions giant Cisco is acquiring cloud networking software startup Isovalent. Cisco is reportedly paying $650M for the acquisition, according to sources. The purchase price represents a 32x premium over Isovalent's annual recurring revenue.

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The acquisition is expected to close in the third quarter of 2024.
Cisco will continue to further develop Isovalent's product suite, which will help it further advance its Cisco Security Cloud offerings.
Isovalent's team will join the Cisco Security Business Group.
Isovalent has raised $69M in total funding to date, the last of which came in the form of a $40M Series B round led by Thomvest Partners in Sept. 2022.
Other notable backers of the firm include Google, Microsoft, Mirae Assets, and Andreessen Horowitz.

Online e-commerce firm Zulily is winding down operations due to the challenging business environment. The firm will be liquidating assets to provide maximum value to its shareholders.

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Zulily was valued at $9B at its peak in 2015.
The company started to spiral earlier this May after investment firm Regent acquired Zulily from longtime owner Quarate Retail Group.
Immediately after the acquisition, Regent laid off employees and moved the firm's Seattle headquarters into a smaller space to lower costs.
Earlier this month, Zulily sued Amazon, alleging that the e-commerce giant forced common third-party suppliers to maintain "price parity" with both retailers.
Challenges further intensified after CEO Terry Boyle decided to step down, and the company announced a second round of layoffs.

According to VC firm Atomico, the climate tech sector dominated the European VC fundraising landscape in 2023, raking in a 27% share of the total capital. Atomico expects climate tech to maintain its dominance in 2024.

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Eight Roads Ventures' partner Alston Zecha shares the same view, thanks to the rising public awareness about climate change, Europe's supportive policy and regulatory framework, and the region's lead in "green finance."
Picus Capital's Philipp Emig reckons early-stage startups that transition into growth stages "will find ample capital in dedicated funds waiting to be deployed."
Climate tech funding tripled in 2023 compared to 2021, overtaking fintech and software sector in the rankings.
Despite the enthusiasm for the upcoming year, funding is not expected to match the record highs seen in the second half of 2021 and early 2022.

Quick Hits:

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Non-banking finance companies Aditya Birla Finance and DMI Finance are reportedly in talks to acquire fintech startup ZestMoney.
Climate tech startups in Australia raised $116M in VC funding in Q3 2023, nearly double its previous quarter's tally of $60M.
Glean Technologies hired former aiXplain Inc. general counsel Victor Huang as its head of legal. Another startup, Cerebras, hired Shirley Li as general counsel.
Package+, a Taiwanese startup offering circular economy solutions for packaging, is looking to expand across Southeast Asia.
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