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Future of Capital Allocation

Your weekly newsletter on the fast-evolving world of investing

 
The week's developments in investing & technology, explained | 25.01.24

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Years of loose money let VCs back new businesses with growth potential even if they lacked a quick path to profitability. Fast forward to today and a long drought in acquisitions and IPOs has forced early investors to offload their stock at discounts — serving up opportunities for secondary buyers to snap up shares on the cheap — but with traditional exit strategies freezing up, could secondary markets offer VCs a liquidity refuge?

Elsewhere, a report by financial services firm Lanzard shows investor focus is shifting toward so-called ‘hard technologies'. Plus, new data by Pitchbook revealed 2023 saw 35% fewer unicorns being born globally — the lowest tally in six years.

Read on for more — including the dystopian rise of AI-powered companies and an expert’s advice on scaling up your startup (surprise, surprise it's all about building a robust financial strategy!).

 

—Charlie and the Research & Intelligence Team


 

The investment ecosystem


📈 Investors are seizing the chance to buy discounted stakes in startups, raising billions as traditional IPOs dry up. With firms like Lexington Partners leading the charge, the secondary market is becoming a vital trading hub for private company shares.

 

🤖 Yes, the AI boom dominated 2023 – but so did other so-called ‘hard technologies’: Investors heavily backed companies in AI, Energy Transition, Life Sciences, Quantum computing, Robotics, Semiconductors and Space, accounting for nearly 70% of overall deal value in the EU — up from just 20% in 2021.


💸  European PE held relatively strong in 2023 compared to Venture Capital, with VC deal values plummeting by 46% year-over-year compared to a 27% decline for PE. Experts point to interest rate hikes — affecting both borrowing costs and valuations — as key factors in these divergent trends.


 

Chart of the week


Data by Pitchbook shows the percentage of European VC rounds with nontraditional investor participation fell in 2023 by 32.9%. Broader economic pressures — including the VC market downturn — caused investors to reassess their risk appetite last year in favour of more conservative investments.

 

How AI is transforming investing 

 

🤖 AI-powered companies with no employees could be coming sooner than you think. More and more startups are pursuing the holy grail of building AI-driven businesses with no human intervention. But how soon could these machine automated businesses start generating economic value independently?

 

🦄 Despite a surge in AI, 2023 saw a significant dip in unicorn births. Only 45 startups achieved $1 billion valuations in 2023, an 87% decrease from 2021's peak. Unsurprisingly, AI and machine learning firms made up over 44% of these newly minted unicorns.


Startups


🤔 Want to scale up your startup? Startups often aim for rapid growth and profitability  — but in a tough economic climate, they may find it hard to follow through. Hiring a CFO who can navigate financial complexities could be a crucial first step to successfully scale up your business.

 

📉 Startups may be turning to PE for exits. With the future of IPO market's still uncertain, startups — especially unicorns — are exploring alternatives like PE for much-needed exits amidst the ongoing market downturn. But could this pressure to exit mean lower valuations for startups?

 

Jobs



 

Noteworthy deals


  • Everphone, a Berlin-based platform which lets companies and employees rent mobile phones, has raised £231m in a series D funding round led by Capnor and Calista.

  • Karlsruhe, a Germany-based startup developing sustainable e-Fuels and synthetic chemicals has raised £101.3m in series B funding led by Piva Capital.

  • AI-powered synthetic voice cloning startup ElevenLabs announced that it has closed an £62.8m series B round co-led by Andreessen Horowitz, and other investors including Sequoia Capital and former GitHub CEO Nat Friedman. 

  • Switzerland-based nutrition and skincare product startup Lausanne has raised £51.8m in series D funding led by BOLD — L'Oréal Groupe’s venture fund.

  • Clerk, a San Francisco-based startup developing a suite of authentication and user management solutions, has raised £23.6m in a series B round led by CRV.


 

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Disclaimer: This content is for informational and educational purposes only. It does not constitute financial, investment, legal or tax advice.

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