So far, 2024 has gone like 2023 in the startup world.
AI remains the dominant topic in venture capital, funding is up slightly, but most don’t seem to know if this is a trend or a passing moment, and the window for IPO is still only a little bit open.
What can happen in the second half?
Well, here’s a look at five trends that Crunchbase News editors and reporters have been watching this year. Take them with a grain of salt: Late last year we reported that AI valuations could fall.
Don’t bet on this big M&A win
It seemed like for most of last year, everyone was pointing to 2024 as the year M&A would make a big comeback after several quarters of decline.
This big comeback just isn’t happening – at least not for venture capital-backed startups.
In fact, mergers and acquisitions are down in the first half of this year, with only 904 deals involving startups completed, according to Crunchbase. data. There were more than 1,000 in the first half of last year.
The reasons are varied – from interest rates to regulations to valuations that are still too high – but the bottom line is that deals just aren’t getting done.
Of course there are, including two $3 billion deals in the second quarter: Merck buy a private biotechnology company EyeBiotech for up to $3 billion, and Hg purchase Audit commission for more than 3 billion dollars.
But there just haven’t been many. Even though valuations have fallen, that apparently hasn’t been enough for buyers in the market. Plus, the November election is weighing on everything – and buyers will likely see what the regulatory atmosphere will be like after the result before making a major acquisition (although it looks like a regulatory process can be expected slow antitrust, whatever happens). .
There are, however, some reasons to be optimistic about a resumption of mergers and acquisitions. The valuation revision that came after the market correction in 2022 and 2023 has had some time to stabilize. Now acquirers have a much better idea of what they are willing to pay for a company, and acquired companies have a clearer idea of what they will accept. Additionally, the historical backlog of yet-to-be-released unicorns means there is a wide range of solid, still-private companies for acquirers to choose from.
Maybe a big deal will revive the market (like the Google/Ace could have if it had not collapsed). But haven’t we been saying that for a while?
Chips make a lot of money
Chipmakers made the news recently as trade sanctions and stock prices dominated headlines.
However, chipmakers have also caused a stir due to the large sums of money they have raised – or are about to raise.
Funding for semiconductor startups increased by about 25% in the first half of this year, with venture-backed companies raising about $5.5 billion, according to Crunchbase. data. The number includes huge tours from PsiQuantum, Celestial AI And Engraved.ai.
Last week, both DreamBig Semiconductor And Halo Industries raised good sized rounds.
Of course, what’s driving this renewed investor interest in chipmakers is AI. People are looking for specialized generative AI chips that are more cost-effective and energy-efficient, but also faster.
Artificial intelligence is the main reason for the chip giant Nvidia is now a $3 trillion-plus company. And while the actions of Astera Laboratories are off their highs, they are still well above their March IPO price.
Investors do not expect the situation to slow down. Although investing in semiconductor startups is highly specialized, industry players say there is renewed interest and increased deal competition.
Other grand rounds could be on the way, as has been the case reported smartphone manufacturer Samsung leads at least $300 million round for Toronto-based AI chip startup TentorrentAnd Groq seeks to raise a $300 million fresh.
Also, it was reported this artificial intelligence chip start-up Brain systems confidentially filed an application for an IPO. Now is a good time to become an AI chip developer.
Everyone’s mind is on chips right now – and that’s unlikely to change.
Will AI funding continue to grow?
Funding for AI-related companies increased in the latest quarter, the highest since the launch of ChatGPT. Funding nearly doubled year-over-year and quarter-over-quarter to $24 billion. Meanwhile, concerns of the spread of the business with the massive capex required to invest in GPUs to fund this innovation, with no clear revenue in sight.
The proportions have also increased. So far this year, 1 in 4 invested dollars has gone to AI-related companies. In 2023, AI-related startups will raise just under $1 in 5.
Will the increase continue? Our results show that global funding has been volatile from quarter to quarter, driven by the size and number of mega-rounds of $100 million or more. AI is no different. Funding may decline, but AI’s pervasive influence will persist.
New scout funds?
Menlo Ventures And Anthropic announced a new $100 million AI pool called Anthology.
Could this be the latest version of a scouting fund as venture capital firms compete for access to deal flow through well-connected operators? The fund brings together the investment research of leading language model developer Anthropic with the support of veteran venture capital firm Menlo Ventures.
In recent years, AI companies have launched their own funds. OpenAI has OpenAI Seed Fund with $175 million in committed capital, with investments in Harvey, Milo And Talk. Nvidia facility NVentures in 2021, and invested in Twelve laboratories, MindsDB and recently Evolutionary Scale. And Databricks Companiesalso created in 2021, invested in Mistral AI, Perplexity AI And Glean. We spoke with Andrew Ferguson who set up the Data bricks venture outfit with the aim of “strengthening the ecosystem of partners around us”.
Who is next? Mistral AI? Join? AI21 Laboratories?
Project financing will resume
For startups with high infrastructure investment costs, debt financing has long been a popular option. And in recent months, we have seen debt cycles of historic magnitude.
To illustrate, we used Crunchbase data to aggregate a list of six venture-backed companies that have raised debt financing of $1 billion or more in the past year.
Large rounds of project financing are particularly prevalent in the clean technology space. In January, we saw Swedish companies raise two of the largest debt financings: Sustainability-focused battery maker. Northvolt won $5 billion, and the steelmaker H2 Steel Green closed on $4.6 billion. In the tech sector, cloud infrastructure startup AI CoreWeave secured $7.5 billion in debt financing in May.
Looking to the future, with interest rate cuts widely anticipated In the coming months, debt financing could appear more and more attractive. Additionally, given the large number of companies that raised huge amounts of equity money a few years ago, debt financing offers a less dilutive way to capitalize companies for further expansion .
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Illustration: Dom Guzman
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