Pre-Money: May 6th, 2024

KPIs

The week’s top performance indicators

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Dots & Lines

The week’s top takeaways

• Secondary market in full swing: Early venture investors used to hold until their investment IPO’d. But with longer and longer private market lifecycles, secondary exits are becoming more relevant. Investment banks like Goldman have found a way to monetize businesses like Canva and Figma for tender offers instead of waiting until the companies go public, which itself increases their ability to stay private. Options like Hiive, Augment, Destiny, Linqto and others have emerged to give investors private market entry points - sometimes to the dismay of the underlying businesses being traded. And venture funds are getting into the action too, to generate needed liquidity for LPs who have been illiquid for years, selling part or all of their portfolios to vehicles like Lexington’s recent $1.1B fund. Secondary trades offer returns without an IPO or sale, and some are even building a new “portfolio sale clause” into their fund documents. Investors, who might lean into this trend to pick up favored private names at considerable discounts, should consider incorporating secondaries into their overall strategies while exercising care to be sure the source is trustworthy.

• Crypto’s eventful thaw: Crypto venture investments slowed during the sector’s recent “winter,” but look to be picking back up amid Bitcoin’s rally, even in the face of continued headwinds. Venture funding in the crypto space topped $1B again in April, posting the first two months to exceed that total since 2022. Haun Ventures, founded by an a16z veteran and former Assistant US Attorney, reported having made 48 investments from its $1.5B debut fundraise after sitting on the sidelines for the better part of two years. And Coinbase, long seen as a public proxy for all things crypto, put out a strong earnings report, exceeding revenue estimates by 20%. But dark clouds remain. CZ Zhao, CEO and Founder of top exchange Binance, was sentenced to 4 months in prison for anti money-laundering violations. Don’t feel too bad — unlike SBF, his $33B in assets will remain intact. To top it off, the SEC continued its dogged pursuit of crypto infrastructure players, serving Robinhood with a Wells Notice — a common precursor to a lawsuit. As is often the case for crypto investors, the only certainty is volatility.

• Throwing shade on AI: Artificial intelligence has been billed by many as the solution to a variety of human-generated problems. But on the way to Utopia, it’s stirring up some of its own. Generative AI has been called an “energy hog” due to its massive consumption of data centers, energy and hardware, and that demand will grow as the technology becomes more powerful. Utilities like it, as the energy appetite drives a need for more power plants, and more profit. But much of this supply will come from fossil fuels, which increasingly puts AI growth at odds with energy and climate policy. Even Warren Buffett is joining in on the critique, comparing AI innovation to the emergence of nuclear weapons at his annual meeting. AI investors should be ready for a rocky ride as the technology advances and establishes its role on the global stage.

Deal Points

A few items of interest

• Private Equity Fund Permira is purchasing a majority interest in Tel Aviv-based Biocatch, a fast-growing fraud detection company founded in 2011, at a $1.3B valuation

• Tether, issuer of stablecoin USDT, invested $200M for a majority interest in Blackrock Neurotech (no relation to the financial institution…), which makes brain-computer interfaces

• CoreWeave, a New Jersey-based cloud provider of GPUs for AI services, raised $1.1B on a valuation of $19B

• Island raised a $175M Series D from Coatue and Sequioia at a $3B valuation to continue building its security-focused enterprise browser

• Altruist, the Los Angeles-based RIA custodian, raised $169M in a Series E from Iconiq at a $1.5B valuation, becoming fintech’s newest unicorn

• Down rounds accounted for a third of deals done in the first quarter of 2024, according to leading venture law firm Cooley’s latest report

• Mismanaged “accelerator” Newchip dragged startups down with it when it went bankrupt due to warrants it misled them to grant it

• A 2019 email disclosed in Google’s anti-trust investigation suggests Microsoft made a rushed decision to invest in OpenAI in a moment of panic related to Google’s perceived AI advances

• The $150-200M acquisition of Lacework - which raised $1.9B and was valued at one point at $8.3B - by cloud security juggernaut Wiz fell apart in diligence

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