Growth Equity Update

November 2024 – Edition 32

• Secondary considerations: ‘The traditional view is that venture capital is a cradle to grave industry where the only exit opportunities come from a full acquisition or IPO. With exit timelines extending by several years and trillions of dollars locked up in illiquid private companies, that mindset is starting to change. Shareholders of venture backed companies, limited partners and fund managers are increasingly turning to the secondary market as a tool for interim liquidity.’ StepStone. We review recent deals in a buoyant VC secondaries market and look at some of the new dedicated funds.
• VC fundraising – new money, new strategies: Pitchbook’s global data on VC fundraising indicates the industry raised $30bn in Q1, US$50bn in Q2 and $63bn in Q3. We look at recent raises, focusing on General Catalyst’s new concept of a broader partnership with founders which states ‘to achieve outsize impact using applied AI and global resilience to address what we believe are the world’s great challenges, we must also transcend the traditional definition of venture capital.’
• Venture capital raises – Strong October: October’s Deal Monitor recorded 45 US deals at $100m+ (vs 18 in September) raising $16bn, the biggest month of the year. Europe’s $3.5bn of October raises was the third highest month ytd and 2.7x October 2023.
• I, AI, AI, AI, AI, AI like you very much… According to Crunchbase one in three US venture capital dollars raised in 2024 has gone to AI. Post October’s $6.6bn OpenAI raise further big deals for xAI, Anthropic, Perplexity and Sierra appear in the offing.
• Further rate cuts: 25bps from the Fed, the Bank of England, and the ECB and more likely before year end, plus a boost to stocks (but not bonds) from the Trump trade.
• ‘We learn from history that we do not learn from history.’ Hegel

Click here to download a PDF version of Growth Equity Update

Secondary activity picks up

With the IPO market still muted and with the fallout from the changing environment in venture capital since 2021 still working its way through the system, interest in the secondaries market is buoyant.

With exits still at a relatively low ebb there has been a marked pick up in secondary activity through 2024. A number of big secondaries have caught the eye in recent weeks.

In early October, the UK neobank Monzo announced it had completed a secondary share sale valuing the business at $5.9bn. The shares were mainly sourced from existing employees with buyers including StepStone and Singapore’s GIC. Monzo’s CEO TS Anil stated, ‘It’s great to be able to provide employees with some liquidity, while meeting further investor demand for Monzo equity.’

The company’s March 2024 funding round, which raised $430m, was at a $5bn valuation. A further $190m of funding was announced in May, valuing the business at $5.2bn. The secondary deal appears to have valued Monzo at $5.9bn. The secondary offer appears to have been made to existing staff, allowing them to sell up to 40% of their holdings. It was not extended to former staff.

Later in October Vinted, the consumer-to-consumer second-hand fashion marketplace, closed a €340m secondary share sale to a group of new investors led by the private equity business TPG and including new investors such as Baillie Gifford, FJ Labs, Hedosophia, Invus Opportunities, Manhattan Venture Partners, and Moore Strategic Ventures. The sale valued Vinted at €5bn versus the €3.5bn in its €250m Series F in 2021. Vinted’s CEO Thomas Plantenga commented the sale 'rewards our employees for their dedication in making Vinted a success.'

Later in October Moneybox, the UK savings and investment platform, announced a secondary share sale with the Apis Global Growth Fund III and Amundi jointly investing c£70m in the business. Apis committed £5.5m in primary with £54.5m absorbing secondary sales. Amundi purchased £8m of secondary shares. In this case existing investors were entitled to sell c10% of their holdings at a share price of £10.08 (vs the Series D at £5.58 and the Series C at £3.50). The secondary valued Moneybox at £550m, up 84% over the March 2022 Series D valuation and almost three times the level of the July 2020 Series C. Moneybox has an extensive shareholder base of 35,000 including employees, customer shareholders and crowdfunder investors.

Matt Cooper, co-CEO of Crowdcube observed 'This marks the largest secondary liquidity event ever for a private company in the UK and EU by number of sellers. More than 26,000 retail investors backed Moneybox in some of Europe’s most successful retail investment rounds for a private company, and it is fantastic to see them now being rewarded with the chance to sell part of their shareholding.'

Another UK fintech, GoCardless, is in the process of arranging a secondary sale for employees, worth as much as $200m.

In August Revolut announced a secondary share sale to provide employee liquidity. The deal which was led by new investors Coatue and D1 Capital Partners and existing investor Tiger Global was done at a $45bn valuation. The valuation was up from the $33bn recorded at the July 2021 raise. The company did not reveal the cap on the size of the deal. Press reports suggest that the total size of the deal was $500m and that the CEO of Revolut, Nik Storonsky, accounted for c40%-60% of this, or $200m-$300m. His remaining stake is still said to be worth several billion dollars.

In March 2023 Dublin based fintech Stripe Inc raised $6.5bn in a funding round to address the Restricted Stock units (RSUs - share incentives) which Stripe has for some years built into the compensation packages of key employees. About $3.5bn of the $6.5bn was used to cover the tax obligations arising from the RSUs with the rest being used to buy shares from employees who wished to sell.

In March 2024, Stripe again facilitated the sale of shares by employees by establishing a tender offer with the participation of Goldman Sachs Growth Equity and Sequoia together with some funds from Stripe’s own resources. The tender offer for c$1bn of stock valued the company at $65bn, 30% higher than the March 2023 level.

Open AI held a tender offer in February this year allowing employees to sell at a valuation of $86bn. OpenAI has told employees it intends to hold one tender offer roughly every year subject to market conditions. The October 2024 $6.6bn primary round valued the company at a $150bn valuation. Space X holds secondary rounds twice a year to allow employees and shareholders to sell stock.

Canva, the graphic design tools company had a $1.6bn secondary market sale in March valuing the company at $26bn. In August 2023 Blackbird Ventures sold $150m of shares to Coatue Management and ICONIQ Capital at a $25.5bn valuation. Blackbird also sold shares in the March 2024 transaction although the bulk of the stock sold was from current and former employees.

There are a number of issues and opportunities surrounding the use of secondaries. For a company it presents a number of opportunities.

Providing liquidity to staff: As we have seen, this is a key function of many secondaries. Employees are critical in start-ups, and many will have a substantial part of their wealth tied up in the start-up in which they have been involved. Life events though do not wait for delayed IPO markets and so employees often need to crystallise some of that value pre-IPO to ease regular financial demands. As the Monzo example though shows, there are choices to be made even here. The recent Monzo secondary offer was not extended to former staff, allowing it to prioritise current employees and leaving the former staff with their stakes still in the business.

Tidying up the cap table: As businesses grow and scale up, early-stage investors may not have the desire or the means to participate in larger scale later stage funding rounds. A secondary offers the chance to simplify the cap table with larger shareholders consolidating their positions by buying out earlier stage investors who no longer want to stay the course. Again, there are mechanics around such a process with a potential tension between obtaining the highest possible price for the stock sold and controlling which shareholders exit the business.

Introducing new shareholders: In several of these processes we have seen the secondary led by new investors in the company – the Vinted secondary is a good example. It presents an opportunity for investors to come into a business at a more established stage while simultaneously allowing earlier stage investors a liquidity event. Particularly with the switch in VC emphasis to profitability and cash flow post 2021, the gap between rounds may become longer and the size of rounds may become smaller. In such cases a secondary is an opportunity for a new investor to establish a decent sized holding in a business.

Valuation benchmark: In each of the cases we have reviewed, the valuation benchmark set in the recent secondary exceeded that achieved in the previous formal round. This simple result probably masks a myriad of competing considerations. The success of the companies we have highlighted will have the secondary process easier to complete as buyers are keen and sellers are being taken out at a premium to the previous price benchmark. Such factors will not always prevail…

A pre-IPO manoeuvre: Linked to all these factors, a secondary is frequently a useful pre -IPO manoeuvre. Ahead of an imminent IPO it can help to clean up the cap table, bring in new investors who intend to support the IPO, provides liquidity to employee shareholders, and provides an updated valuation benchmark.

Returning to valuation: One of the obvious potential issues in secondaries is valuation. We observed that the spate of recent high-profile secondaries has been conducted at a premium to the most recent announced round. These happy circumstances will not, however, prevail in all cases. Founders are clearly sensitive to valuation and both founders and existing investors typically wish to avoid setting a price benchmark below that of a previous round. The announcement of a secondary at a lower price may be taken as a negative signal for the prospects of a business.

The lack of publicly available financial information on private companies can make them difficult to price. Michael Podolny, a San Francisco based partner at global law firm Latham & Watkins comments:

"The most complicated aspect of engaging in secondaries for a VC fund is sourcing opportunities; transactions are private, off-market, confidential and require trusted relationship[s] and access to data. Additionally, pricing these less mature and less visible assets in the venture market is challenging, as it involves getting access to data and a more qualitative analysis and negotiation compared to the more straightforward — often intermediated — processes in private equity.”

One way of tracking trends in secondary market valuations is to look at the data provide by Forge Global, a leading US based secondary market exchange.

The chart tracks the valuation trends seen on the Forge Global with the data reflecting the firming of the VC market we have seen in the last year. At the peak of the VC market in 2021, stock on the secondary markets traded at a median premium to the valuation seen in the last funding round, turning positive in December 2020, hitting a peak of a 25% premium in March 2021 and remaining in positive territory until February 2022 (the month that Russia invaded Ukraine).

AS VC markets declined the gap between secondary market prices and the last round widened to a negative 49% by December 2022. The nadir was hit in September 2023 at -62%. Since then, the recovery has been substantial. By September 2024, the median discount to the last public round had narrowed to just 12%.

We have seen a number of funds raising money specifically to address the burgeoning market for secondaries. In June Lightspeed Venture Partners applied to the SEC to become a ‘registered investment adviser.’ This allows it to avoid the cap on venture funds that states they can hold no more than 20% in secondary rather than new investments. Lightspeed has a total of $25bn of assets and is reported to have spent c$580m on secondaries in the last three years. Quoted in the FT Michael Romano, chief business officer of Lightspeed commented:

“Given market dislocation we were able to purchase a lot of very compelling new opportunities at significant discounts of 45 to 50 per cent compared to the last fundraising round... …Absent an IPO or any M&A, venture capital firms need to get more creative to identify paths to liquidity. Secondaries are a key component of that.”

In September Industry Ventures raised $1.45bn for its tenth secondaries fund. In August GSquared raised $1.1bn for its most recent secondaries fund. In Europe Isomer Capital launched a new $128m secondaries fund in April. These funds are directed not just at buying secondary stakes in companies direct but also at buying up the portfolio, or parts of the portfolio, of other VC funds that are seeking liquidity for their assets.
StepStone Group announced a new $3.3bn fund devoted to secondaries in June this year. Partner John Avirett commented:

"The traditional view is that venture capital is a cradle to grave industry where the only exit opportunities come from a full acquisition or IPO. With exit timelines extending by several years and trillions of dollars locked up in illiquid private companies, that mindset is starting to change. Shareholders of venture backed companies, limited partners and fund managers are increasingly turning to the secondary market as a tool for interim liquidity. We are in a privileged position to help each of these parties achieve their goals through the solutions we offer."

The StepStone approach illustrates the options available in the secondary market. It aims to provide liquidity to founders and early investors in mature venture-backed companies; to purchase interests in venture capital funds from limited partners; and to assist fund managers with structured solutions like portfolio strip sales, tenders, and continuation funds.

The rise of the secondary market in VC mirrors a much more well-developed secondaries market in private equity. Its increased popularity is correlated to the continued depressed level of exits given the modest level of IPOs and M&A activity. This is illustrated in these charts from Pitchbook.

The first shows that annual exit activity has revived modestly in 2024 at a value of $68.9bn to end Q3 versus $89bn and $72bn for the whole of 2022 and 2023. The implied annualised exit rate of $92bn in 2024 though will still be substantially below the levels of 2017-21.

US VC Exit activity

The next chart looks at the recent quarterly trend. Q3 2024 saw $10.4bn generated across 243 exit events, the lowest since Q2 2023. The IPO market continues to be tepid. By sector, the largest exits came from healthcare.

Quarterly US Exit activity ($bn)

Venture Funds – a flurry of fundraising

The more positive tone prevails

We observed in our October Growth Equity Update that, while the statistics for global venture capital firm fundraising continued to look relatively downbeat, the tone of recent fundraising trends had begun to look more optimistic. This was borne out by Pitchbook data on global VC fundraising to the end of September which indicates that globally the industry raised $30.4bn in Q1, US$50.1bn in Q2 and $62.6bn in Q3 bringing the ytd total to $143.1bn. This means global VC funding is on a run rate for a full year total close to $190bn, versus the $203bn in 2023 and the peak of $382bn in 2021.

Substantial fund announcements continue to be made. In October General Catalyst announced that it had raised $8bn for its most recent funds, reported as the biggest fund raise by a VC firm since March 2022 when Tiger Global raised $12.7bn.

General Catalyst’s $8bn will be allocated in three ways:

The largest portion of $4.5bn is for core venture capital investments across seed and growth equity, deployed through dedicated strategies: Ignition (early-stage), Endurance (growth-stage), and Health Assurance.

There will be $1.5bn dedicated to company creation, including 'venture buyouts' and the development of new businesses from the ground up.

Some $2bn will be in separately managed accounts (SMAs) targeted at fuelling ‘the next generation of groundbreaking technologies and businesses'.

Interestingly Hemant Taneja, the CEO of General Catalyst identifies the $3.5bn to be deployed in the latter two buckets as a different way of investing in ventures, becoming involved in starting up companies rather than limiting itself to funding start-ups already created.

"Behind the moves that we’re making is the fundamental observation that venture capital does not scale. There are the same number of outlier [companies] whether you make funds bigger or make funds smaller.
But to achieve outsize impact using applied AI and global resilience to address what we believe are the world’s great challenges, we must also transcend the traditional definition of venture capital. So, we’ve broadened our founder and capital solutions to venture beyond and support founders with a broader partnership."

An example of this approach came with the massive $900m Series A raise by Pacific Fusion in October. The aim of the company, which was founded in the summer of 2023 is to ‘power the world with abundant, affordable, clean energy’. The company believes that in the last two years, breakthroughs in inertial fusion and pulsed power have opened a path to affordable fusion power. The company aims to build a high-gain pulsed magnetic fusion driver to achieve ‘net facility gain’ (more fusion energy output than all stored energy input). In parallel, it has started engineering the components and systems needed for affordable commercial fusion systems. It will take a long time though. The plan is to have a full-scale demonstration system sometime in the early 2030s, and commercial systems later in the decade.

General Catalyst led the deal for this project with a long list of backers (Andrew Forrest, Breakthrough Energy Ventures, Elad Gil, Eric Schmidt, John Doerr, Ken Griffin, Lachy Groom, Leitmotif, Lightspeed, Lowercarbon Capital, Mustafa Suleyman, Patrick Collison, Reid Hoffman, Richard Merkin, and Trousdale Ventures).

Pacific Capital notes ‘We structured the round in a unique way: The funding is all committed upfront (to mitigate financing risk), and it’s unlocked as we achieve predefined milestones (to ensure accountability). We’re enormously grateful to Hemant, the GC team, and our founding syndicate for their creative partnership in structuring the financing.’

Meanwhile Lightspeed Venture Partners is reported in the press as being close to raising c$7bn across three new funds which would exceed the $6.7bn it raised in its last round of new funds in 2022. Around $2.8bn is to be devoted to a VC style continuation fund with the rest targeted for a growth-stage fund and one focused on seed and Series A companies.

Insight Partners is expected to close its Flagship XIII fund in early 2025. It is reported to have more than $10 billion of commitments with a target of $12.5bn. Insight funds invest across the range in growth with the company writing cheques from $5m to $500m and from seed to IPO.

In the cross-over field, Coatue Management is in the process of raising $1bn, mainly from institutional investors, to invest in artificial intelligence start-ups.

The Trump trade

Further interest rate cuts and a positive response to the US election result have further boosted markets.

The first full week of November saw the removal of political uncertainty and a substantial electoral victory for the Republicans combined with a further Fed rate cut. It led to a strong week for equity markets with the S&P up 4.7% and NASDAQ up 5.8%. Year to date NASDAQ is now up 30%, and the S&P500 is up 26%.

The European markets continue to lag. Both the EuroSTOXX 600 and the FTSE 100 were barely changed in the week of the US elections. The STOXX600 is now up 5% YTD and the FTSE 100 by 4%.

The US election cycle appeared not to disturb the cycle of Fed decision making. At its meeting on November 6-7 the Fed cut US interest rates by 25bps to 4.5%-4.75%. There had been a minority view, given the generally buoyant trend in jobs statistics (but not the hurricane and strike impacted October pre-election number of 12,000), that the Fed might not cut rates at this meeting and so the announcement was greeted positively. The Fed instead commented that inflation was ‘somewhat elevated,’ that labour market conditions had ‘generally eased’ and that the economy was growing at a ‘steady pace.’

There was the usual cautious tone from the Fed on the pace of further rate cuts. The Fed’s official dot plot, which shows its projected course of interest rates, indicates another 25bps of rate cuts by the end of 2024 (thus implying a further 25bps rate cut at the December 17th meeting) taking the Fed rate to 4.25%-4.5%.

The Fed dot plot then looks for a further fall of 100bps in rates to 3.25%-3.5% by the end of 2025.

That implies four rate cuts of 25bps each. As ever, there are eight Fed meetings planned in 2025. So, there will be Fed meetings in 2025 where rates are not cut, and the market has already moved to speculation as to when the Fed will pause on interest rate cuts. In turn this partly depends on inflation and partly on a view of where ‘neutral’ rates – where inflation is held in check while growth remains stimulated - should end up. The October inflation number came in at 2.6%, modestly above the 2.4% of September but in line with market expectations. Core CPI (ex-food and energy) was again at 3.3%, in line with expectations albeit still above the Fed’s target level. On that basis the market continues to factor in a further 25bps rates cut in December but appears not to be expecting a rate cut at the Fed meeting scheduled for January 29.

The Fed appears to have done a reasonably good job in pulling off the seemingly unachievable – controlling inflation while encouraging growth and guiding the US towards a soft landing. In this context continuity post the election is seen as desirable by the market and appears to be achievable. Back in July President elect Trump indicated that he would not seek to remove Jay Powell as chair of the Fed if elected. Despite subsequent criticism of Powell from the Trump camp during the election campaign, that appears still to be the position. Asked at the latest Fed meeting whether he would step down early from his post – his allotted term runs until May 2026 – Jay Powell made it clear that the new administration has no right to remove him and that he intends to serve out his term.

The Trump Trade: Meanwhile the US election result engendered a pivot in markets as sectors and stocks seen as potential beneficiaries of the new administration responded to the result. The so called Trump trade saw bond yields rise (the price of bonds fell) as investors anticipated higher trade tariffs, a higher deficit due to tax cuts, higher inflation, and fewer interest rate cuts. The anticipation that Trump’s administration will imply less regulation, lower taxes, less immigration, and higher tariffs sent certain sectors of the stock market notably higher, including banks, energy stocks, smaller companies, and some tech stocks. Crypto related stocks have been big beneficiaries of the expectation of lower regulation.

In the UK on November 7 the Bank of England (BoE) again cut interest rates, taking them down by 25bps to 4.75%. At its September meeting the BoE had left rates unchanged. In August it had cut rates by 25bps to 5%, the first rate cut since 2020. In August, the decision was a close one with a 5-4 majority on the BoE rate setting committee for a cut. The November meeting was a much more one-sided affair with an eight-to-one majority for a further 25bps cut.

The rate cut came post the first budget of the new Labour government. The Budget is anticipated to put upwards pressure on inflation with the Office of Budget Responsibility saying, ‘We estimate that Budget policy measures increase inflation by 0.4 percentage points at their peak effect in 2026, mainly reflecting the impact of the excess demand generated by the fiscal loosening and some pass-through of employer NICs to consumer prices.’

UK CPI was at 1.7% in September, which is beneath the BoE’s 2% target, but it is not expected to stay at such low levels. The OBR expects UK inflation to pick up to 2.6% in 2025 and then slowly to fall back to 2% by 2027-28. Compared to its March forecast, inflation is 110bps/60bps higher in 2025/2026 ‘driven mainly by greater-than-expected persistence in wage growth and the impact of the near-term fiscal loosening in this Budget.’

On interest rates the OBR now expects interest rates to fall to c3.5% in the final year of its forecast, 2029. It has raised its expectation for interest rates in 2025 and 2026 by around 50bps relative to the March forecast and by 25bps across the entire range of the forecast reflecting the discretionary fiscal easing in the Budget

Bank Rate and five-year gilt yield

After the November 7 decision the BoE governor, Andrew Bailey commented ‘We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much, but if the economy evolves as we expect, it’s likely that interest rates will continue to fall gradually from here.’

All this, plus the US election result with its prospect of potentially higher trade tariffs impacting inflation, means the market no longer anticipates the BoE will cut rates at its next meeting on December 19.

In June, the ECB lowered interest rates for the first time in five years, cutting the core interest rate by 25bps to 3.75%. It followed this up in its mid-September meeting with another 25bps cut to 3.5%. Despite the minutes of that meeting saying that a ‘gradual’ and ‘cautious’ approach to rate cuts was still appropriate because it is ‘not fully certain that the inflation problem was solved‘ the ECB again cut rates in October. The ECB cut rates by 25bps to 3.25%.

The commentary from ECB president Christine Lagarde post the decision indicates that the ECB sees inflation on track saying that recent indicators had ‘improved our confidence’ that the Euro area is on track to reach its 2% inflation target in 2025. Eurozone inflation was 1.7% in September albeit expected to rise towards the end of the year. With the Eurozone economy still weakening the market anticipates further 25bps rate cuts at both the December and January meetings taking rates down to 2.75% at that point.

Interest rates are starting to fall

Rothschild & Co strategist Kevin Gardiner summarises the current key drivers of the market in this graphic:

Venture capital raises – Strong October

US venture raises were particularly strong in October with our monitor recording 45 deals at $100m or more (compared with 18 in September) topped by the $6.6bn raise for OpenAI led by Thrive Capital, Khlosa Ventures, Microsoft and Nvidia. In total US venture raises for the month stood at just short of $16bn. It is the biggest month of the year to date.

There were fourteen deals of $200m or more. There were three artificial intelligence raises. The OpenAI deal raised $6.6bn at a valuation pre money of $150bn. A $500m Series B led by Bain Capital, DST Global and Nvidia for Poolside was the third largest deal of the month. Poolside has built a foundation model, an API, and an Assistant to help software engineers. In turn the model learns how the developers write code and infuses this into its process. Lightmatter’s high powered photonics interconnect layer (30 terabits) enables 1024 GPUs to operate simultaneously. Effectively it speeds up the performance of AI datacentres. Its $400m Series D was led by T Rowe Price and Google Ventures and valued the company at $4.4bn.

Energy related deals were prominent in the month. Pacific Fusion raised $900m in a Series A led by General Catalyst and Alkeon Capital. A $500m investment in X-energy was led by Amazon Web Services. The company is a developer of small modular nuclear reactors and AWS will use X-Energy’s reactors to power its datacentres with 5GMW of power planned to come on stream by 2039.

The energy demands of AI are also being addressed by Crusoe Energy. Its mission states ‘AI requires a tremendous amount of energy. Taking an "energy first" approach to building and operating clean computing infrastructure, Crusoe reduces both the costs and the environmental impact of the world's expanding AI needs.’ The company aims to deliver ‘gigawatts of new data centre capacity.’ Crusoe raised $500m in a Series D led by Founders Fund that valued the business at $3bn.

Other ClimateTech deals were the $405m raised in a Series F by Form Energy led by T Rowe Price and GE Vernova. Form uses an iron-air battery system for long term energy storage. BrightNight raised $440m in a strategic investment from Goldman Sachs Alternatives. BrightNight has a 31-gigawatt renewable power project portfolio, including solar, energy storage, and hybrid solutions.

Two substantial biotech deals. Kailera Therapeutics - oral therapies for the treatment of obesity - raised $400m in a Series A led by Atlas Venture and Bain Capital Life Sciences. Seaport Therapeutics, with a range of novel anxiety and depression treatments, raised $225m in a deal led by General Atlantic and T Rowe Price.

A couple of fintech deals. Mortgage release company Splitero raised $300m in a deal led by Antarctica Capital and insurance company Zinnia raised $300m from Vista Credit Partners.

Rounding out the bigger deals, cybersecurity company Armis raised a $200m Series D at a valuation of $4.2bn with General Catalyst and Alkeon Capital leading. It was last valued at $3.4bn in a November 2021 raise. Its ARR, which has doubled in 18 months, is $200m suggesting a c20x revenue multiple. The Armis Centrix platform offers real-time cyber exposure management. Beta Technologies raised $380m in a Series C led by the QIA, Fidelity and TPG Rise. The company is developing electric fixed-wing and eVTOL (electric vertical take-off and landing) aircraft.

The US – $16bn of US venture backed raises of $100m+ in October

In Europe, our Deal Monitor recorded $3.5bn of venture capital raises in October, the third highest monthly total ytd. The amount raised was 2.7x the level of October 2023 and almost 30% higher than October 2022. This is a bounce back after Q3 2024 saw European VC raises down 27% on Q3 2023 and 10% down on Q3 2022. It means that YTD 2024 European raises are now at $29.1bn, 15% ahead of the 2023 level.

It was a strong month for Climate Tech raises with four deals in the top twelve including the largest. French asset management business Mirova invested $528m to become a significant minority investor in the independent power producer RP Global which is commissioning 2.5GW of solar, wind and storage assets by 2029. The European Bank for Reconstruction and Development invested $110m in GreenGenius to support renewable energy development in EBRD countries. The Lithuanian business has developed 2.7 GW of renewable energy projects and has completed 549 MW worth of projects across solar, wind, biomethane and batteries. Swiss business terralayr raised $84m in equity and debt from RIVE Private Investment, Creandum and Earlybird. It is a developer of renewable battery storage systems. Aira of Sweden raised a Series B of $69m from Temasek and Statkraft Ventures to expand its heat pump business.

There were five biotechs in the top ten, continuing the recent revival in raises in the industry. Purespring Therapeutics raised $105m in a Series B led by Sofinnova and Gilde Healthcare. It is developing gene therapy for kidney diseases. Agomab Therapeutics’ Series D was led by Sanofi and Invus and raised $89m for its treatments in fibrosis and chronic conditions. Resolution Therapeutics has a cell therapy for liver disease and raised $83m in a Series B led by Syncona. Blue Earth Therapeutics, which is developing novel cancer treatments, raised $77m in a deal led by Soleus Capital and Sands Capital Management. Nuclera’s benchtop protein system attracted $75m in funding in a deal led by Elevage Medical Technologies.

The second largest deal of the month was the $500m Series E raised by martech Insider led by General Atlantic. Insider describes itself as an omnichannel experience and customer engagement platform. The Turkish company aims to develop further its marketing software offering, invest in AI related R&D and to grow its staff base and geographic footprint.

One fintech in the leading group with Zepz, an international money transfer platform – it owns WorldRemit and Sendwave- raising $267m from Accel, Leapfrog and IFC.

Space services business The Exploration Company which has developed Nyx, a reusable space capsule, raised $165m at a $465m post money valuation in a deal led by Balderton Capital.

Europe - $3.5bn of raises in October

Catching up on AI raises

According to Crunchbase one in three US venture capital dollars raised in 2024 has gone to AI

We wrote extensively in last month’s Growth Equity Update about Open AI’s $6.6bn raise which valued the business at $150bn. With the market clearly in the mood for AI investment the round, not surprisingly, has led to a flurry of other prospective AI related raises.

Despite having raised $6bn as recently as May this year at a pre -money valuation of $18bn, xAI is reportedly seeking another fund raise. This time the Elon Musk led business is said to be looking for a $5bn raise at a valuation of up to $45bn. The business started in July 2023 and in November that year launched Grok-1, an AI LLM 'modelled after the Hitchhiker’s Guide to the Galaxy. It is intended to answer almost anything and, far harder, even suggest what questions to ask!’ In March, Grok-1.5 was launched with improved reasoning capabilities and in its 1.5V version, stronger processing capability for visual information. The last round was supported by investors including Valor Equity Partners, Vy Capital, Andreessen Horowitz, Sequoia Capital, FMR, Prince Alwaleed Bin Talal and Kingdom Holding, amongst others.

Anthropic is one of the key rivals to OpenAI. In May 2023 it raised a $450m Series C led by Spark Capital with participation from Google, Salesforce Ventures, Sound Ventures, and Zoom Ventures. The valuation – not officially revealed at that time - was said to be in the order of $4bn-$4.5bn. In September 2023 Amazon concluded a $4bn investment in the business. In January 2024 Anthropic raised a $1.2bn Series D led by Menlo Ventures valuing the company at $18bn. Anthropic was reported in September to be in early talks to raise a further round at a valuation of $30bn-$40bn.

In April, this year Perplexity AI raised a $250m Series C valuing the business at $2.5bn. The round was led by NEA and IVP. This followed a $74m Series B completed in early January and supported by Nvidia, Jeff Bezos and others which came in at a valuation of c$520m.

Perplexity describes itself as ‘the world's first fully functional conversational answer engine.’ The business looks to compete with Google, with users typing in questions and receiving conversational style answers, with much of the information derived from web scraping. This has led to accusations by publishers that Perplexity has plagiarised their material which in turn led Perplexity to announce in July this year a ‘Publishers Program’ that offers publishers a double-digit share of Perplexity’s (yet modest) revenues.

Perplexity has now entered a new round of funding talks and is reported to be seeking to raise c$500m at a valuation of c$9bn.

Sierra describes itself as a conversational AI company. It has developed conversational AI chatbots ('I knew the AI agent would answer questions quickly, but I didn’t expect the responses to be so genuine and empathetic') aiming to improve customer experience using AI. Management has a strong pedigree. The business was founded by Bret Taylor, the former co-CEO of Salesforce and current chair of OpenAI.

In February 2024 Sierra raised $110m in a deal led by Sequoia and Benchmark which valued the company, founded in early 2023, at a valuation of close to $1bn. In late October Sierra raised a further $175m in a deal led by Greenoaks Capital, ICONIQ and Thrive Capital that valued the business at c$4.5bn.

US VC AI raises $100m+ ytd – 32 deals and $23bn raised

Our views on the state of the venture capital markets

The combination of global inflation, rising interest rates, and increased geopolitical risk substantially impacted the venture capital market in 2022 and 2023. As we move through 2024 adaptation to the ‘new normal’, the refocusing of venture backed companies to achieve a better balance of growth, profitability and cash flow and the delivery of interest rate cuts have led to increased optimism and enthusiasm for growth equity. Our summary of the outlook is:

• The deterioration in the interest rate, inflation and macro-economic environment has had a sharp impact on valuations in private markets. The scale of the fall in the Refinitiv VC index in 2022 was much more substantial than the 33% fall on NASDAQ. This was reflected in some big valuation reductions in some high-profile VC rounds in 2023.
• There is substantial interest in venture capital to fund artificial intelligence, both the foundation LLM models, the applications of AI and industries (data centres, semiconductors) supporting the development of AI.
  ▪ Best-in-class companies, addressing critical requirements, continue to attract support. There are still hotspots for investment most notably in Artificial Intelligence and Climate Tech. Certain investors remain highly active in the space with substantial funds to deploy.
• The speed of the investment process has slowed. The level of diligence on new deals has stepped up.
• 2023 saw more downrounds, albeit the substantial fund raising of 2021 and the ability of companies to eke out existing resources has limited the number of these. These continue into 2024.
• There is substantial dry powder in the VC industry. This though appears to be prioritised to support existing rather than new investments.
• It seems that the more difficult conditions for fundraising, and the lack of a clear path in some cases to early cash positive status, will mean a flurry of venture capital backed businesses looking to sell or merge their businesses.
• Valuation priorities have shifted with investors having moved away from an emphasis on revenue growth and revenue multiple emphasis. There is a sharp focus instead on profitability (or a rapid path to it), on positive free cash flow and an emphasis on DCF and comparative based multiples.

Read the previous editions:

May 2022, June 2022, June 2022 (2), July 2022, August 2022, Sep 2022, October 2022, November 2022, December 2022, January 2023, February 2023, March 2023,  April 2023, May 2023, June 2023, July 2023, August 2023, September 2023,  October 2023, November 2023, December 2023, January 2024, February 2024,  March 2024, April 2024, May 2024, June 2024,  July 2024, August 2024,  September 2024, October 2024

For more information, or advice, contact our Growth Equity team:

Chris Hawley
Global Head of Private Capital
chris.hawley@rothschildandco.com
+44 20 7280 5826
+44 7753 426 961

Patrick Wellington
Vice Chairman of Equity Advisory
patrick.wellington@rothschildandco.com
+44 20 7280 5088
+44 7542 477 291

Mark Connelly
Head of North American Equity Market Solutions
mark.connelly@rothschildandco.com
+1 212 403 5500
+1 917 297 5131

Stéphanie Arnaud
Managing Director – France
stephanie.arnaud@rothschildandco.com
+33 1 40 74 72 93
+33 6 45 01 72 96