PitchBook News - Priced out of the AI bidding war

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The Weekend Pitch

August 18, 2024

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

(Julia Midkiff/PitchBook News)

In the VC world, there are the rare founders who carry a certain mystique about them.

An extraordinary technical talent, or an especially hungry business savant, who appears at the perfect time in a boom cycle is able to subvert the normal mathematical rules of valuation.

I'm Rosie Bradbury, and this is The Weekend Pitch. You can reach me at rosie.bradbury@pitchbook.com or on X @_RosieBradbury.

Take the founder of Ceramic, a stealth startup I reported on this week. From her research with John McCarthy, one of the pioneers of AI, to her role as VP of engineering for AI at Google, CEO Anna Patterson's résumé reads like the platonic ideal of a technical founder.

So it was no surprise that NEA, Ceramic's lead investor, priced the startup at a $60 million post-money valuation in its first funding round, according to a person familiar with the deal. Though Patterson's experience might be unique, the lofty valuation for a company that's still largely in the R&D stage is not.

World Labs, a startup founded by "godmother of AI" Fei-Fei Li, reportedly rose to unicorn status in less than four months backed by Andreessen Horowitz, Radical Ventures and, again, NEA.

You don't need a crystal ball to guess Safe Superintelligence, the company founded by former OpenAI founder Ilya Sutskever alongside co-founders Daniel Gross and Daniel Levy, will command similar interest.

Dogfighting among VCs vying to access premier founders and the hottest AI rocketships is common. A combination of AI exuberance, fear of missing out and shiny new mega-funds have created an environment where pre-revenue AI companies can almost set the price.

Trivia

The VC landscape is increasingly defined by deals for AI companies. According to the Q2 2024 PitchBook-NVCA Venture Monitor, AI has taken up a large share of US VC deal value. How much US VC deal value so far this year is comprised of AI deals?

A) 22%
B) 41%
C) 52%
D) 39%

Find your answer at the bottom of The Weekend Pitch!

Quote/Unquote

"When you're thinking about use cases, so much of what's out there is broad, like 'I can schedule meetings for you or anyone, but that's all I can do.' The depth is actually much smaller."

—EliseAI CEO and co-founder Minna Song, whose startup just raised a $75 million Series D, talking about how specialized large language models have been the key to their success.

Fund performance outlook
brightens after ho-hum 2023

The temperature is rising in deal rooms as investment activity increases across private markets—promising improvements in fund performance after a relatively subdued 2023, according to our latest Global Fund Performance Report.

Private equity posted a one-year IRR of 10.5% last year, a welcome turnaround after declining 1.4% in 2022.

VC wrapped up 2023 by recording its sixth consecutive quarter of negative one-year IRRs. However, Q4 brought signs that the strategy is making its way back into the black.

Private debt funds returned an estimated 9.2% for 2023, capping a banner year for floating-rate loans.

All eyes on the Fed in September

As investors lick their wounds from August's stock market volatility and a weak jobs report for July, many are now turning their attention to whether the Federal Reserve will finally cut interest rates for the first time since 2020. Meanwhile, buyout fund returns are on track for a bounce-back year, while private debt and infrastructure continue to attract LP dollars.

With 80 pages of charts, our latest Quantitative Perspectives report peers into PE, VC, real estate, real assets and debt through a macroeconomic lens.

Popping the hood on
middle-market fintech M&A

(Birdlkportfolio/Getty Images)

Our latest Emerging Tech Research on fintech M&A and valuations covers the exit trends in the sector, looking at the popular buyout categories and patterns.

PE buyouts slowed to an estimated 12 deals in Q2—down 57% from the previous quarter. But there are reasons to be optimistic, PitchBook analysts James Ulan and Rudy Yang say, with the past 12 months signaling healthy dealmaking overall. Corporate M&A remains flat and will take time to return.

The analyst note provides a detailed set of valuation comps for the middle market, using acquisition price and employee count.

Stay tuned

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

Q2 2024 Medtech Report
Q2 2024 Clean Energy Tech Report
Q2 2024 Biopharma Report
Analyst Note: Farm Management Software Market Overview
Q2 2024 France Snapshot

Trivia

Answer: B)

AI deals have made up 41% of all US VC deal value so far in 2024, collecting $38.6 billion of the $93.4 billion invested in US VC deals. But a majority of these deals aren't coming from VC firms. Jacob Robbins reports on who's really investing in AI and how this gold rush obscures the overall picture.

This edition of The Weekend Pitch was written by Rosie Bradbury and Jacob Robbins. It was edited by James Thorne and Clarinda Simpson.

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PitchBook News - Priced out of the AI bidding war

Trivia

Quote/Unquote

Fund performance outlook
brightens after ho-hum 2023

All eyes on the Fed in September

Popping the hood on
middle-market fintech M&A

Stay tuned

Trivia

Older messages

Are VC funds on the road to recovery?

Fund performance outlook brightens

Startups face up to valuation cuts

How much debt is too much?

Valuations are worse than they look

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PitchBook News - Priced out of the AI bidding war

Trivia

Quote/Unquote

Fund performance outlook brightens after ho-hum 2023

All eyes on the Fed in September

Popping the hood on middle-market fintech M&A

Stay tuned

Trivia

Older messages

You Might Also Like

Fund performance outlook
brightens after ho-hum 2023

Popping the hood on
middle-market fintech M&A