Herd mentality resurfaces as VCs chase AI

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The Weekend Pitch

July 9, 2023

Presented by the U.S. National Science Foundation

(Mara Potter/PitchBook News)

Last month, a story popped up on my news aggregator about a four-week-old startup yet to develop its first product that had raised over $100 million in venture funding. At first I dismissed the story, thinking that it was old news.

But on closer inspection, I was surprised to see that Mistral AI's funding announcement was not from June 2021, when markets were hot, but from midyear 2023.

AI startups have seemingly defied the overall decline in VC funding of the past 18 months, collectively raising $15.5 billion this year, according to PitchBook data. Even when you exclude OpenAI's $10 billion round, the sector's VC funding in 2023 has surpassed last year's total and is well over halfway to 2021's peak of $9.1 billion. On top of that, deal pace has remained steady, and median post-money valuation is up 109.8% from last year.

While VCs have become more cautious with the downturn, the eagerness of some investors to plow capital into very early stage AI startups suggests that some of the exuberance of 2021 remains.

At the same time as Mistral AI's announcement, reports said a three-month-old AI startup founded by former Salesforce co-CEO Bret Taylor and ex-Google executive Clay Bavor raised its first funding round at a valuation of more than $100 million. A week later, Inflection AI grabbed $1.3 billion despite only being a year old. It's now worth $4 billion.

While one could argue the scale of AI opportunity justifies the hype, this recent investment activity suggests that a sort of herd mentality has taken hold.

This is the Weekend Pitch, and I'm Leah Hodgson. You can reach me at leah.hodgson@pitchbook.com or on Twitter @LeahFHodgson.

Trivia

Our latest market map tackles foodtech, the vertical operating at the intersection of food and technology. The map breaks down the segment of alternative proteins. Which one of these is NOT a part of the alt-proteins segment?

A) Fermented protein
B) Edible Insects
C) Cultivated protein
D) Corn protein

Find the answer at the bottom of The Weekend Pitch!

The inside scoop on ESG and Impact investing

(SWKStock/Shutterstock)

What do the pros really think about sustainable investing? And more importantly, what are they doing about it?

We asked, and hundreds of GPs and LPs from around the world answered. Altogether, their responses provide a detailed view into how private market players are using the frameworks to make their biggest decisions. Read the report on our fourth annual Sustainable Investing Survey.

Decline in exits could build a maturity wall

(bogdanhoda/Shutterstock)

Private equity investors grappling with today's exit drop-off could be dealing with its impacts for years to come.

Our new analyst note extrapolates from 15 years of exit activity to predict where today's active PE funds are headed. Barring an unlikely spike in exits in the next five or so years, GPs could be facing an asset pileup of as much as $360 billion. Read PE Exit Timelines and the Impending Maturity Wall.

Trickle-down skid in valuations

(Avigator Fortuner/Shutterstock)

The pressures facing late-stage startups are increasingly appearing earlier in the venture lifecycle. The median early-stage valuation for US VC-backed companies declined 20% this year to $39.8 million, following two years of rapid growth.

More insights can be found in our first cut of venture data from the Q2 2023 PitchBook-NVCA Venture Monitor, sponsored by Insperity, J.P. Morgan, and Dentons. The full report drops this week.

Quote/Unquote

(Min C. Chiu/Shutterstock)

"We make sure that our investors understand that if a year goes by and we don't buy a business, that needs to be OK."

—Aryella Frommer, head of investor relations at Altas Partners, told PitchBook reporter Jessica Hamlin after Altas closed its third flagship fund on $4 billion. Frommer elaborated on the fund's patient strategy and extended structure.

Stay tuned

Keep an eye out for these insights and research reports coming out this week:

Q2 2023 US PE Breakdown
Q2 2023 PitchBook-NVCA Venture Monitor
Analyst Note: Secondaries and Liquifying Illiquid Investments Webinar Recap
Analyst Note: The Value-Based Care Enabler Landscape 2023 PitchBook Benchmarks

Trivia

Answer: D)

Corn protein is not a part of the alt-proteins segment. You can read more about foodtech and the alt-proteins segment in our latest market map.

This edition of The Weekend Pitch was written by Leah Hodgson, Emily Burleson, Claire Simpson and James Thorne. It was edited by Andrew Woodman and Ron Prichard.

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Herd mentality resurfaces as VCs chase AI

Trivia

The inside scoop on ESG and Impact investing

Decline in exits could build a maturity wall

Trickle-down skid in valuations

Quote/Unquote

Recommended Reads

Stay tuned

Trivia

Older messages

ESG views move toward the middle

Public fintechs strive for profitability

Our ESG survey rounds up investor opinions

How alternative meat fits into foodtech

A success story for value-based care

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