Pre-Money: May 20th, 2024

KPIs

The week’s top performance indicators

Partner

3i Members: Access Alternative Deal Flow

3i Members is a private membership network built for accomplished investors to discover direct, esoteric, peer-sourced deals and compound hard-earned financial wisdom and expertise. Their members are heads of family offices and exited founders who leverage the network to co-invest (without any additional fees) in private equity, private credit, specialty finance and real assets. Members also gain access to monthly deal meetings, community due diligence, member-expert database, international events and retreats, strategy specific masterclasses, asset allocation workshops, an online forum and more.

Recently, 3i surveyed their network to assess members' investment trends. The notable change? Private equity reached its highest point in 12 months, hitting 34%. 3i actively curates opportunity sets by considering member preferences and market cycles over time, and in their most recent Monthly Deal Meeting, they showcased two deals within the private equity space.

Learn how to become a member and discover more about how 3i sources and diligences investment opportunities

Dots & Lines

The week’s top takeaways

• The gulf is not just for funding, but startups too: Persian Gulf powers Saudi Arabia and The United Arab Emirates (UAE) found themselves in the center of Silicon Valley activity due to the lack of liquidity globally, US-China tensions and their focus on diversifying beyond oil. They created a local branch of the Louvre and even built a synagogue to encourage visits from foreign capital. Now, funds building a presence in the region are investing locally into fintech, e-commerce and more, and boosted VC investment in Saudi Arabia to more than $1.4B last year, a 6x from five years prior. Round-tripping, where an investee puts capital right back into an investor-affiliated entity, is not unusual in private equity. Many fund investors go on to raise for their companies from the fund they invested in, just as corporate VCs invest in AI companies who then spend those funds on the investors’ cloud infrastructure. But the Gulf’s flows constitute capital at a massive scale. The region may be transforming into a frontier market as much as a funding hub, so keep an eye on its footprint as it continues to assert itself in VC.

• Softbank’s new vision: At the other end of the venture lifecycle stands the Softbank Vision Fund. Remember it? The OG mega-fund, SVF raised $166B across two funds - with fund I powered by $43B from Saudi Arabia’s Public Investment Fund (PIF) and Mubadala, Abu Dhabi’s Sovereign Wealth Fund. They backed global standouts like WeWork and Coupang with eye-popping check sizes. While some bets won - Coupang, for example, netted SVF $37B - many got frozen out in the 2022 venture winter. This period resulted in billions in investment losses and the departure of top executives. Buoyed somewhat by last year’s ARM IPO, which netted it $4B, SVF recovered a bit of late with its first gains in three years. And Softbank itself remains profitable and growing. What role will mega-funds like it have a role to play in the ecosystem’s next chapter?

• AI’s race to the bottom: The AI arms race dialed up a few more notches this week, with a new name threatening to upend the nascent industry: Meta. Zuck’s plan to leapfrog the upstarts in the AI wars is to give models away for free via open source, preserving market share to stay relevant and figuring out later how to monetize. Meantime, category leader OpenAI unveiled GPT-4o, the highest-performing model to date that allows more real-time integration with audio and video inputs, enabling use cases like tutoring, translation and more. The price to use the new model: also free. Competitors aren’t going to like this last part — analysis of Ramp’s credit card spend data shows a healthy 105% revenue growth among top AI companies. Yes, adoption smoothed a bit and market share has shifted within the top - but all of that revenue could be at risk. Things are moving so fast that OpenAI even disbanded a top safety team meant to protect us all from AI going rogue. For investors, it’s still early and the only certainty is that the battlefield will keep changing.

• Potential of the venture studio: Venture studios, also known as “incubators” or “company-builders,” gave rise to success stories like Yelp and Dollar Shave Club. Investors back companies, and accelerators help early ventures raise funds. Studios - like Expa, Atomic and a reported 800 others, do both, matching validated ideas with founders and providing the early hustle to build momentum. These studio models vary widely in structure, but they act more like a co-founder with a checkbook than as an investor. As Weekend Fund partner Ryan Hoover notes in a recent deep-dive into the practices of leading studios, high-performers are capable of de-risking a company. Conversely, given that most of the studio’s work is done super-early in a company’s lifecycle, it often creates challenging dynamics for future investors. They may be put off by the studio - an entity who no longer plans to add value but holds a significant (30-70% in some cases) chunk of the cap table. Alternative models for company-building could get more mainstream in a world where founders struggle to raise capital and investors seek more control and protection.

Deal Points

A few items of interest

• Corporate venture capital (CVC) investments grew more than 25% last quarter, doubling the growth rate of the rest of venture, driven by mega-rounds like Figure and Wonder

• Valuation hikes between rounds are smaller, secondary markets show 28% discounts on average and 27% of rounds are down or flat according to Pitchbook’s Q1 valuations report

• Security leader Cyberark bought machine identity company Venafi in a $1.5B transaction

• Venture firm Accel raised its eight fund, a $650M vehicle to back early-stage companies in Europe and Israel

• Cloud computing provider CoreWeave raised $7.5B of debt to continue scaling its data centers

• Vercel, a web hosting and development platform, raised a $250M Series E and is now valued at $3.25B

• Raspberry Pi, the bargain DIY computer maker valued at $597M last year, filed to go public on the London Stock Exchange

• The Bot Company, a new venture from the founder of self-driving car company Cruise plus engineering leaders from Tesla, announced itself and a $150M raise to build robots for household chores

• Business intelligence and data analytics provider Sigma, based in San Francisco, raised a $200M Series D on a $1.5B valuation led by Spark and Avenir, a 60% boost from its last raise

• Polymarket, a prediction market, raised $70M, including a Series B led by Founders Fund and an A led by General Catalyst

• Pre-IPO companies GoPuff and Replit cut 6% and 20% of their teams, respectively