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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 | 25.04.24

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There are plenty of reasons why GenAI hasn't caught on with companies as much as experts predicted. Steep costs and wild hallucinations are well-known culprits. One less discussed reason, however, is the sheer inadequacy of current AI infrastructure.


It’s no surprise, then, that investors are eagerly backing companies laying the groundwork (Nvidia's shares, for instance, have soared over 500% since early 2023). But with the AI gold rush heating up, which companies are set to spearhead the next phase of AI investment? We cover this below.


Elsewhere, commodity traders are turning to big data and AI for a trading edge, a $11 billion free-for-all for space startups and Goldman Sachs CEO David Solomon views on AI.

—Charlie and the Research & Intelligence Team


The investment ecosystem

🤖 AI infrastructure stocks are poised to be the next phase of investment. Goldman Sachs Research suggests that the next phase of AI investment (Phase 2) will focus on companies building AI infrastructure, such as semiconductor designers, cloud providers, and data centre REITs. Phase 3 will involve companies incorporating AI into their products to boost revenue, while Phase 4 will centre on AI-driven productivity gains across various industries.


🧑🏻‍💼 The growth of investor headcount at the US largest VC firms has stalled. While these firms added a net 124 investors in 2023, annual arrivals declined by 27% and departures climbed by 30%, compared to the boom times of 2021.


💰 Are European LPs the answer to US VC’s fundraising woes? With US funding options limited, many are turning to Europe for cash. European LPs have a lower capital allocation in VC overall, meaning there's more room and appetite to commit to the asset class. 


🪙 Crypto markets will be driven by macro factors following the halving, Coinbase says. Their new report suggests that a number of investors are treating bitcoin as a hedge against geopolitical risk, potentially explaining the reduced magnitude of pullbacks this cycle.


🇪🇺 The European startup ecosystem has reason to celebrate, as new data from Dealroom reveals a 5% year-on-year increase in VC investment in Q1 of 2024. The Netherlands has shown a particularly strong comeback, with funding skyrocketing by 107%. 


Chart of the week

Europe's VC exit market remained sluggish in Q1 2024 with low deal numbers and IPOs. VC IPOs are drying up, with barely any on the horizon for 2024.


How AI is transforming investing 


🦾 Goldman Sachs sees gold mind in AI. According to Goldman Sachs chief executive David Solomon, AI is likely to push companies and governments to invest at an "unprecedented" scale. He said AI is already driving key conversations with clients in both its investment banking and markets divisions, as firms look to make their businesses "competitive at pace”.


📈 Commodity traders are turning to big data and AI for a trading edge. This "arms race" is driven by competition from hedge funds using similar tactics. But while AI isn't yet predicting the market perfectly (for now), it's improving efficiency and helping traders make better decisions.


🤖 BCG is raking in the cash with AI. The consulting giant expects a whopping 20% of their revenue this year to come from helping companies use AI — and the number is projected to double by 2026.


👩🏻‍💼 VC funding for female founders stalls at 2% despite efforts. Experts say the focus needs to shift from coaching and workshops to more direct solutions — like setting up funding pools dedicated to women.


🚀 A $11 billion free-for-all for space startups. NASA’s mission to return samples from Mars is going to take too long and be very expensive, so they're scrapping it and turning to private industry for cheaper ideas. For startups building space-related tech, it’s game time.


💸 Just 4 months after a massive series A funding round, French AI leader Mistral is in talks with investors to raise money again at a $5bn valuation. The paris-based startup, valued currently at 2bn, is looking to raise €500m in funding, according to multiple people close to the talks.




Noteworthy deals

  • Rippling, a US-based HR startup raised a $200m Series F led by Coatue and Founders Fund for its business management platform.


  • Skyports, a London-based flying electric drone and vertiport infrastructure developer, raised $110m in Series C funding led by ACS Group.


  • Theolytics, an oxford based biotech company developing viral cancer therapies, raised £19m in funding from investors including Sound Bioventures, M Ventures, Taiho Ventures, Epidarex Capital, Oxford Science Enterprises and the University of Oxford.


  • Cognivia, a Belgium-based startup developing machine learning algorithms for clinical research have raised €15.5m from investors including Vesalius Biocapital, SFPIM-International and Wallonie Entreprendre.


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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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