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Didn't have access to read the article, but i think it is noteworthy that investors are refocusing on banks after the collapse of credit suisse and SVB

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Huyen - Generative AI startups jockey for VC dollars

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Huyen - Generative AI startups jockey for VC dollars

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With Amazon's launch of Bedrock, a suite of generative AI tools for its cloud business, the AI horse race continues to gain speed, and there's no denying the obvious: Generative AI has captivated investors' attention.

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With Amazon's launch of Bedrock, a suite of generative AI tools for its cloud business, the AI horse race continues to gain speed, and there's no denying the obvious: Generative AI has captivated investors' attention.

The tech giants are choosing their mounts, and a select few startups have been given launchpads. Amazon has picked Anthropic's Claude and Stability.ai's Stable Diffusion to serve as foundational models. In January, Microsoft turned heads when its plans to invest an unprecedented $10 billion in ChatGPT creator OpenAI were reported.

It's all indicative of a larger trend: Despite mounting pressure on venture capital in a difficult economic environment, money still pours into generative AI startups.

Roughly $1.7 billion was generated across 46 deals in Q1 2023, according to PitchBook data. An additional $10.68 billion worth of deals were announced in the quarter but have not completed.

"It's not a crowded market yet, but it is getting more competitive," said Lu Zhang, the founder and managing partner of VC firm Fusion Fund. During Q1, Fusion Fund invested in two generative AI startups in stealth mode that raised seed funding between $5 million and $15 million.

"The barrier for entry is still quite low," she added.

Fusion Fund, whose portfolio includes generative AI search engine You.com, has seen an 80% increase in the number of pitches for generative AI startups in just the past two months, according to Zhang.

Zhang said she sees an opportunity for investors in vertical applications, where generative AI is integrated into enterprise and commercial services. And she predicts that startups tackling privacy issues, data collection and energy consumption within generative AI broadly will become more prevalent.

Brett Calhoun, managing director and partner at Scale VC, has also seen an increase in the number of startups utilizing generative AI. Like Zhang, his primary area of interest is in vertical applications-what he dubbed the "boring sectors" like synthetic data generation, which uses computer-generated statistical models to imitate datasets that would be difficult or dangerous to collect organically.

And Ascend Venture Capital, which only reviews startups with previous venture funding, has noted an increase in companies seeking funding that it attributes partially to founders seeking to get on the generative AI bandwagon, according to general partner Dan Conner.

These investors said consulting with experts and reading the latest papers on generative AI's progress are key to understanding where the technology and market are going. When it comes to parsing through the larger volume of startups, firms are putting their faith in founders.

As Calhoun put it: "We're betting on the jockeys, not the horse."

Featured image via gabriel12/Shutterstock

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Generative AI startups raised $1.6+ billion in Q1 2023

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With Amazon's launch of Bedrock, a suite of generative AI tools for its cloud business, the AI horse race continues to gain speed, and there's no denying the obvious: Generative AI has captivated investors' attention. The tech giants are choosing their mounts, and a select few startups have been given launchpads.

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What catches your attention this week in the world of entrepreneurial finance? Why is it interesting to the class? Looking forward to your posts!

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What catches your attention this week in the world of entrepreneurial finance? Why is it interesting to the class? Looking forward to your posts!

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David- Getting to Series A has gotten harder

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David- Getting to Series A has gotten harder

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The past 5 quarters, Series A investments has been consecutively decreasing. This article is a great read explaining how ventures are having issues going from seed-funding to Series A.

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For seed-funded startups, the odds of graduating to a Series A round have never been particularly favorable. But as venture funding contracts, the chances have gotten even slimmer.

That's the broad finding from our latest perusal of U.S. Series A funding, which shows that investment is on track to hit the lowest quarterly total in over two years.

Things have been heading lower for a while now. Per Crunchbase data, Series A investment has fallen for five consecutive quarters, since peaking in late 2021. For perspective, we chart out funding totals and round counts for the past nine quarters below:

Biotech dominates for big rounds

Even though funding is down, there's still an enormous chunk of change going into Series A. So far this year, investors have poured close to $4.5 billion into the deals at this stage nationwide.

They're writing some big checks as well. At least five startups secured Series A investments of $100 million and up, and about 35 rounds exceeded $30 million.

As usual, life sciences companies captured most of the largest rounds in recent months. Top fundraisers include:

Paradigm, a New York-based startup developing technology aimed at simplifying clinical trials for doctors, researchers and pharmaceutical companies, raised a $203 million Series A round led by Arch Venture Partners and General Catalyst.

Cargo Therapeutics, a San Mateo, California-based biotech working on a next generation of chimeric antigen receptor T-cell therapies for cancer, raised $200 million in a March Series A round led by Third Rock Ventures and RTW.

Rapport Therapeutics, a Boston-based developer of precision neuromedicines, raised $100 million in a March Series A, also led by Third Rock Ventures.

It's common to see biotechs top the Series A ranking, which is a function of the fact that they're expensive to scale. Biotechs also often tap public markets for capital in lieu of late-stage rounds, so early stage is a venture investor's best chance to get in while a company is still private.

What we're not seeing

While biotech is alive and well at Series A, the same can't be said for other sectors that were hot several quarters ago.

Fintech and Web3 have been particularly out of favor at Series A, which is a finding we also noted for Series B. It's an especially striking shift for fintech, which was the leading sector for venture investment in 2022 across stages.

So far this year, there have been just 30 disclosed-size Series A rounds totaling $598 million across all financial services categories, which includes such areas as cryptocurrency, consumer lending and digital banking. In the same period last year, $2.15 billion went to financial services.

Oddly, even funding to AI categories - one of 2023's buzziest sectors - was down at Series A. Per Crunchbase data, $371 million in Series A funding went to companies applying or developing AI technology so far this year, down from $1.08 billion in the same period last year.

Not everything is down

While fewer seed-funded companies are closing Series A rounds, the good news is that for those who do, the typical check size is bigger.

So far this year, the median size of a Series A round was $12 million, per Crunchbase data, compared to $7.5 million in the same period last year. That's not entirely a bullish signal - while rounds are sizable, there are fewer of them. Still, it's something.

It also looks like the decline in peak to trough investment totals for Series A is less pronounced than for Series B. That said, Series A quarterly investment is still down about two-thirds from the highs hit in late 2021.

Will we reverse course and see things pick up again? That's certainly the hope, and venture investors still have plenty of dry powder to make that happen. Even so, there's little expectation we'll be retracing previous highs anytime soon.
Illustration: Dom Guzman

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For seed-funded startups, the odds of graduating to a Series A round have never been particularly favorable. But as venture funding contracts, the chances have gotten even slimmer. That's the broad finding from our latest perusal of U.S. Series A funding, which shows that investment is on track to hit the lowest quarterly total in over two years.

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David- European VC funding drastically decreases

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David- European VC funding drastically decreases

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This article is also very interesting. It explains the progression of different funding-rounds in the European ecosystem.

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This year is off to a bleak start for the startup ecosystem in Europe.

Startups raised $10.6 billion in funding, down 18% quarter over quarter and a whopping 66% year over year, per Crunchbase data, as American investors pulled back.

Europe's funding downturn is on par with most of the world. Global funding was down 53% year over year, per Crunchbase data, a sign that the tech industry is still reeling from 2022's high interest rates and broader economic uncertainty.

But we're starting to see the long-term effects of this uncertainty. European seed funding saw a dramatic 25% collapse last quarter - a signal that VCs aren't confident in making long-term commitments right now. While late-stage startups experienced the worst funding pullback year over year, early-stage funding performed the best of the three stages (though funding was still down 7%).

Europe is still adjusting to a new funding ecosystem - one that will have to depend less on foreign investments. As a result, deal counts are the lowest they've ever been in a three-year period, and companies are incubating strategies to put themselves in the U.S. market.

Table of Contents

American VC pullback

When venture funding peaked in 2021, many of the U.S.' most prominent venture firms looked across the pond for deals.

Francois Veron, managing partner at the France-based venture firm Newfund, estimates around 40% of startup funding in France in 2022 was fueled by venture capital agencies in the U.S. In Q1 2023, that number is likely only 5%, he estimates.

"There is a sense of going back to normal, but actually that will pinch the industry very much," Veron said. "When you invest in startups, that means that these startups will ask for more money two years after their funding."

Indeed, European startup funding overall is approaching pre-pandemic levels. Not only are deal counts the lowest they've been in a three-year period, Europe's $10.6 billion in funding is the lowest the continent has seen since Q1 2020, when the region garnered $9.9 billion.

Late-stage funding is no longer first priority

Europe's early-stage startups have eclipsed late-stage companies in funding - the first time since Q4 2020 - by $600 million.

That's an interesting point, since late-stage startups have long consumed the majority of venture dollars due to how capital intensive such large startups tend to be.

Late-stage funding has taken quite the beating these last few quarters. Funding in Q1 amounted to $4.3 billion, down 77% year over year in part because pandemic-era inflation put company valuations in a tough spot.

While several big startups such as Klarna and Stripe have incrementally slashed valuations dramatically, it's still too hard to tell how much these companies are actually worth. That, coupled with fears of conducting a down round, has put funding in this space at a standstill.

Pullback hits seed stage

The seismic impact of the funding pullback has managed to ripple to seed-stage startups, which saw the biggest quarter-over-quarter hit. Funding dropped 25% quarter over quarter and deal count dropped 28% in the same time period.

The seed-stage hit could be read as a sign of worsening investor confidence, with venture firms prioritizing portfolio companies that may need new funding down the line over new investments (however small they may be).

Early-stage companies: the last beacon of stability

Early-stage startups have seen very little fluctuation quarter over quarter - between Q4 2022 and Q1 2023, funding dropped only 7%. That's a good indication venture firms are heavily prioritizing investment in their existing companies that are perhaps too early stage to have made any revenue yet.

But as they grow, they're likely to encounter some of the problems late-stage startups see in private market funding. Many are looking West to change that. Veron said VCs are advising their startups to accelerate go-to-market strategies in the U.S., where venture funding is more abundant.

"We're not just advising [our startups]," Veron said. "We are also continuing our strategy of building a presence in the U.S. and building a network to help our companies scale."

Methodology

The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of April 3, 2023.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

We have made a change to how we include corporate funding rounds in our reporting as of January 2023. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round.

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the "Series [Letter]" naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a "venture" round. (So basically, any round from the previously defined stages.)

Further reading
Illustration: Dom Guzman

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European VC Funding Drops 66% As Seed Takes A Hit, US Investors Pull Back

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This year is off to a bleak start for the startup ecosystem in Europe. Startups raised $10.6 billion in funding, down 18% quarter over quarter and a whopping 66% year over year, per Crunchbase data, as American investors pulled back. Europe's funding downturn is on par with most of the world.