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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 | 01.02.24

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VC's hot new topic isn’t raising cash, it's returning funding instead. With exits at an all-time low in Europe, it's not surprising to see LPs getting restless for returns on their investments. But how much are VCs willing to give up to appease their backers?


Elsewhere, new Pitchbook data shows M&A of seed-stage startups outshined those of more mature companies, UK fintech investment fell over 34% last year and investor enthusiasm in China’s AI startup scene is waning — but is this a sign that the country’s AI gold rush is over?

Read on to find out more — including some of the biggest funding challenges facing the EU’s top open-source AI companies and advice from a founder on how too much positivity could actually be hurting your startup.

 

—Charlie and the Research & Intelligence Team


 

The investment ecosystem


💵 VCs race to return cash to their investors. Amid a challenging exit environment, VCs are increasingly turning to secondary markets to liquidate their stakes  — often at steep discounts. With European exit opportunities scarce, funds are under pressure to return cash to their investors.

 

💰 M&A of seed-stage startups outshines mature companies. 2023 saw the lowest acquisitions of VC-backed companies in years — but despite overall investor caution, some seed-stage startups are bucking the trend. They outshined acquisitions of Series A and later-stage companies.

 

📉 UK fintech investment dropped 34% in 2023. Last year witnessed a significant downturn in global fintech investment, marking its lowest deal values since 2017 with $113.7 billion across 4,547 deals. The drop spanned all key regions, with ASPAC seeing the sharpest fall.


 

Chart of the week


While only participating in 26% of deals, corporate venture capital drove the bulk of investments in GenAI, which globally reached $29 billion in 2023.

 

How AI is transforming investing 

 

📉 Investor enthusiasm in China’s AI startups wanes. Despite a bustling scene of Chinese startups racing to match ChatGPT's success, 2023 saw a 38% drop in AI investments for the country. Regulatory headwinds and unclear monetisation pathways are just some of the unique obstacles AI startups face in this space.


🤖 “More than 80%’ of pitches now involve AI”. VC veterans Mamoon Hamid and Ilya Fushman believe AI tech has a critical role to play in modern startups. “The first companies to market compelling, data-driven AI products could seize significant advantages”, said the pair in an interview for TechCrunch.


Startups


💸 How can open-source AI companies make money? Europe’s leading startups initially embraced open-source models — but the sustainability of this approach has come under scrutiny as of late. With soaring costs and funding challenges looming, many have pivoted toward monetising their services.

 

🤔 Is too much positivity hurting your startup? Relentless positivity from employees might signal a deeper issue: a reluctance to offer honest feedback. Encouraging a culture where negative feedback is viewed as an opportunity for growth is crucial for employee satisfaction — and company development.

 

Jobs



 

Noteworthy deals


  • Entrust, a privately held company providing a range of verification services around payment cards, is buying the London-based AI identity platform Onfido for a figure “well above” £317m, sources say.

  • Project 3 Mobility, a Croatian-based startup developing autonomous robotaxis has raised £85.3m in a series A investment round.

  • Heura Foods, a Barcelona-based startup developing plant-based food alternatives, has raised £34.1m in series B funding led by Upfield, Unovis Asset Management, the European Circular Bioeconomy Fund, and Newtree Impact.

  • Greyparrot, a London-based startup applying computer vision for waste analytics, has received £10.1m from Dutch recycling giant Bollegraaf in a strategic investment set to accelerate its uptake of AI capabilities.

  • Guided Energy, a Paris-based startup developing smart energy platforms for management of EV fleets, has raised £4.1m in an investment round co-led by Sequoia and Dynamo Ventures.


 

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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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