Inside Venture Capital

For May 31, 2024

Here’s your daily VC briefing:

🔻 Generative AI dealmaking plunged 76% from its peak as investor enthusiasm cooled
📉 VC funding for SaaS startups dropped sharply in Q1 2024
💰 Bain Capital Ventures is set to lead Poolside AI’s new $450M round

Thank you.

Generative AI startup funding at the pre-seed and seed stages dropped 76% from the quarterly peak of $517.7M in Q3 2023 to just $122.9M in Q1 2024 as investor enthusiasm for the sector cooled after last year's frenzy. Deal value plummeted to the lowest level since the launch of ChatGPT in Nov. 2022, which sparked the AI investment frenzy.

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After investing heavily in generative AI startups over the last year, VCs are now taking a pause to see how the rapidly evolving AI technology landscape shapes out.
Investors are concerned about the earnings potential and business models of AI startups that have secured large sums of capital.
Several investors might be "very disappointed" by unrealized ROI as the generative AI hype normalizes and true enterprise value becomes clearer across different use cases.
While generative AI infrastructure startups attracted early capital, VCs are increasingly shifting their focus towards application-layer opportunities, such as music generation services, AI therapists, and virtual teaching assistants.

Venture funding for SaaS and enterprise software startups has cooled significantly, even as the broader U.S. venture market shows signs of recovery, per Crunchbase.

What the numbers say: So far in 2024, the sector has raised just $4.7B, putting it on pace for the lowest annual total in years. The sector bagged $17.4B in 2023.

Relevance: The startup investment slowdown comes amid a challenging period for public SaaS companies. This week, Salesforce and UiPath shares plunged 20% and 30%, respectively, on disappointing forecasts citing softer enterprise demand. The Bessemer Cloud Index of public software stocks has sharply underperformed in 2024 compared to the Nasdaq and S&P 500.

Where to see the impact: Despite the headwinds, some large startup rounds are still getting done. Cloud security unicorn Wiz raised a $1B Series E round at a $12B valuation in May. Glean and Restaurant365 also landed $200M Series D and $175M mega-rounds earlier this year. Only 21 mega-rounds over $100M have closed in the last 12 months versus 147 such deals two years ago.

Bain Capital Ventures (BCV) is reportedly set to lead a new $450M funding round into Poolside AI, a French AI startup developing a specialized large language model for software developers, sources informed Pitchbook. Poolside is targeting a $2B pre-money valuation at the upcoming round.

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The new valuation target represents a 4x jump over its last known post-money valuation of $526M just nine months ago.
BCV participated in Poolside's $126M seed round led by Redpoint Ventures last August.
The potential mega-round reflects the soaring investor demand for generative AI startups building coding copilots and assistants.
It comes just weeks after Augment, another AI coding startup, landed $252M at nearly $1B valuation from Eric Schmidt, Index Ventures, Lightspeed, and other investors.
Microsoft's rapidly growing GitHub Copilot program, which already has over 1.8M paid users, demonstrates the significant market opportunity for AI coding tools.
While Poolside has yet to generate major revenue, it has touted early commercial traction to prospective investors in the upcoming round.

Investment firm TCV secured $3B in capital commitments towards its 12th fund. The new fund will help TCV double down on growth-stage tech startups as valuations recede from 2021 peak levels. TCV plans to deploy over half the capital in North America and the rest in Europe, targeting more established companies a year or two out from potential IPOs.

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This conservative investment approach increases TCV's chances of successfully cashing out its holdings, albeit at a lower multiple return on investment than earlier-stage venture investments.
New limited partners from Asia, the Middle East, Latin America, the U.S., and Europe invested in the latest fund.
Notable startups TCV successfully exited from include Expedia, Instacart, Klarna, Spotify, Netflix, and Airbnb.
TCV's founder, Jay Hoag, claims that the investment firm has consistently distributed over $1B to limited partners for 14 straight years
It has distributed $11B back to LPs since 2020, exceeding the invested capital over that span.
TCV has $21B worth of assets under management.

Early-stage climate tech investor Clean Energy Ventures closed its second flagship fund at $305M. The firm plans to back startups between pre-seed to early growth stages that have the potential to mitigate at least 2.5 gigatons of emissions by 2050. Clean Energy Ventures expects its portfolio companies to collectively reduce 75 gigatons of greenhouse gas emissions by 2050.

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The second fund is nearly triple in size than its predecessor, which closed at $110M.
The oversubscribed fund closed significantly higher than its initial target of $200M.
Limited partners that backed the new fund include Carbon Equity, The Grantham Foundation, Builders Vision, and New Summit Investments.
Clean Energy Ventures has already backed Israeli green ammonia startup Nitrofix, British sustainable aviation fuel developer OxCCU, battery maker Noon Energy, and compressor technology firm Evari with the second fund.
The firm opened a new office in London to help it gain access to startup investment opportunities across Europe and Israel.

Today's Funding:

Blockchain

Babylon, a blockchain infrastructure startup that builds proof-of-stake systems to obtain staking capital from Bitcoin, secured $70M in fresh funding led by Paradigm. Investors participating in the round include Bullish Capital, Polychain Capital, Hashkey Capital, Hack Vc, ViaBTC Capital, Amber, and HTX Ventures.

Fintech

End-to-end financial product management platform FintechOS extended its Series B funding round with an additional $60M capital. Molten Ventures led the Series B+ funding round with additional support from Cipio Partners, BlackRock, Earlybird VC, OTB VC, and Gapminder VC.
Venture incubator studio Squared Circles closed its Series A funding round at $40M. Existing investor L Catterton led the round.
Doconomy, a Swedish startup that offers digital banking services, closed its Series B funding round at €34M ($37M). UBS Next and Commerz Ventures co-led the latest funding round, joined by S&P Global, Motive Ventures, PostFinance, and Tenity.

Healthcare

AI-powered cancer care prediction tool maker Valar Labs raised a $22M Series A funding round led by DCVC and Andreessen Horowitz, with additional support from Pear VC.

Telecommunications

Cloud-native network infrastructure provider Mavenir bagged $75M in fresh funding from existing investors.

Quick Hits:

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The Ukrainian Venture Capital and Private Equity Association announced a $300M Ukrainian Fund of Funds (FoF) initiative to back local VC funds. Ukrainian FoF aims to become the first institutional anchor investor in local funds, contributing upto 30% of the total fund size.
Chinese property developer Country Garden Holdings' CVC arm, Country Garden Venture Capital, is looking to liquidate its undisclosed stake in chipmaker startup ChangXin Memory Technologies (CXMT) for about $276M (2B yuan).
Peak XV Partners reported a 3x gain on its investment in Awfis Space Solutions after the co-working space company completed its IPO listing on May 30, 2024. Through the years, Peak XV garnered a 22.86% stake in the firm.
RPSG Capital Ventures closed its second fund at $65.9M (5.5B INR), exceeding its target size by 150%. The firm typically invests in Series A startups across F&B, beauty, health & wellness, entertainment, lifestyle goods, and consumer sectors, writing checks between $1.2M (100M INR) and $4.8M (400M INR).
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