#164 AI is Driving the VC Market

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The Dog Days of Summer & Kicking Off H2’24

Hello friends, we’re back! Hope everyone had a great 4th! As we find ourselves in the thick of the dog days of summer, it's a perfect time to take a step back and reflect on our journey so far this year. The term "dog days" might evoke images of sluggish heat and lazy afternoons, but for us in the VC CFO / finance world, it’s a prime opportunity to recharge and realign our strategies for H2’24.

Kicking off the second half of the year with a clear plan is crucial. Here are a few strategies we’re focusing on:

  1. Reassessing PE/VC Portfolios: It’s essential to evaluate our current portfolio. Are there any underperforming co.’s that need attention? Conversely, are there high-performing co.’s that could benefit from additional support?

  2. Revisiting The CFO/Finance Checklists: Our year-end process can easily be applied as we kick off Q3. We’ve seen a lot of different frameworks over the years to keep track of all the requirements for funds at year-end. One of our favorites is breaking things down into four buckets: portfolio companies, investor reporting, compliance/legal, and operations/HR. Here’s a link to the The Ultimate PE/VC Fund Checklist for Year-End Finance & Compliance

  3. Planning for Growth: strategic planning is always important. What are the growth areas we should focus on as a firm? How can we mitigate risks and capitalize on emerging trends? A proactive approach now will set us up for a successful H2’24.

AI is Driving the VC Market

Earlier this week, Axios published a post detailing how AI is driving the venture capital market. It was a good reminder of what’s driving VC in 2024 - will the trend continue? We dive deeper in our summary below:

According to PitchBook, AI accounted for over 40% of new private U.S. "unicorns" in the first half of this year and contributed more than 60% to the total increase in venture-backed valuation.

Key Highlights:

  • New AI Unicorns: From January 1 to June 25, 2024, the U.S. saw 13 new AI unicorns—private companies valued at over $1 billion.

  • Massive Valuation Increases: Elon Musk's xAI alone added $24 billion in valuation, with all AI unicorns collectively contributing $116 billion in aggregate value. The overall U.S. unicorn value has risen by $162 billion this year.

  • Growing Investment in AI: Historically, AI accounted for 15%-17% of venture dollars invested in North America and Europe. This figure increased to around 20% in 2023 and is climbing higher in 2024, as noted by PitchBook's senior emerging technology analyst, Brendan Burke.

Challenges and Adjustments:

Despite AI's impressive growth, it hasn't been completely immune to market volatility. The exuberance of 2021 saw a surge in companies incorporating machine learning into their applications, many of which secured funding during the bull market but struggled to meet their goals. Burke highlights that numerous megadeals from that period have not maintained their valuations.

  • Inflection: Raised $1.3 billion at a $4 billion valuation last year but has faced challenges in finding a sustainable business model. Its founders have since joined Microsoft, as the startup pivots to selling technology to businesses.

  • Adept: Valued at $1 billion last year, its founders have moved to Amazon. Adept has yet to publicly release a product.

The bottom line: “VCs' interest in AI is only growing” (Axios).

That’s all for today folks! Thanks for your support and spreading the word! Share this on Twitter or LinkedIn to help grow “the crew!”