In the World of Wild Venture. June 2024
A monthly guide to the world of venture investments news
In the June edition, we talk about best funds investments, VC in Europe, a lot of AI and even more industries. Among them are Foodtech, Agtech, E-Commerce, Enterprise SaaS, Pharmatech, and Biopharma.
Top Stories
Where did the World's Best Funds Invest in Q1?
The traditional PitchBook column tracks investments by 15 of the world's top funds in early-stage startups. The sample consisted of 132 deals. In total, the funds invested $3.2bn, up $500m from the previous quarter. However, when looking at the big picture, investment activity is at 2019–2020 levels and far from its peak. The authors note an elevated level of investment volatility.
In terms of industries, the most popular were AI & ML, biotech, fintech, health & wellness tech, web3 & DeFi, infosec and enterprise SaaS. There has been an unexpected surge in interest in healthcare and information security, while enterprise SaaS has lost ground. The researchers also note the increased ranking of Web3.
The least popular industries were Agtech, Spacetech, AR/VR, Edtech, Adtech, Insurtech, Proptech and Foodtech.
H1 2024 VC Tech Survey from PitchBook
PitchBook researchers surveyed 53 venture capitalists from around the world (most from Europe and the US) to gauge their business sentiment and expectations. Overall, sentiment among venture capitalists has improved significantly. Compared to a similar survey last year, the number of optimists has tripled. There has also been an increased focus on Europe as an alternative to the US.
Capital raising remains stable but picky. Most have no plans to raise a new fund and are restricting themselves to what they have. Investors acknowledge the challenges of raising new capital. This is having an impact on investment strategies: fewer deals, more quality.
As for favourite investment themes, there are no surprises here. AI remains number one, but respondents note that the sector is overheated and oversaturated with money.
Healthcare and biotech are next on the list, along with climate tech, which investors believe has impressive innovation potential. However, these areas are experiencing a lack of capital.
Cryptocurrencies arouse mixed feelings of interest and hatred.
May Early-Stage Deals in Europe
Investment in early-stage European startups continues to grow, reports Sifted. In May, investors closed 407 deals worth €1.7bn, surpassing April's results and all previous months of 2024. This time, France was the number one investment destination. Germany and the UK followed.
Most of the money was invested in ClimateTech (€478m), DeepTech (€377m) and HealthTech (€352m). The study's authors noted that the products of startups in these industries were often built on generative AI, which attracted the attention of investors.
Circular economy, Solar energy and Longevity also deserve attention. The least amount of money went to Drug discovery, Energy storage, Sports & gaming, and Fashion.
The Number of Active VCs in Europe Halved
According to PitchBook statistics, only 906 out of 1,955 European VCs had deals in 2023. European funds are also struggling to raise capital.
Here we go. Investment in AI is Falling
Investment in early-stage AI startups has fallen sharply for the second consecutive quarter, according to PitchBook in the US. In Q1 2024, 34 deals worth $123m were recorded. This compares to $372m in Q4 2023 and $517m in Q3 2023.
The current level of activity is the lowest since ChatGPT was announced. It seems that investors have had enough of this industry and are now busy thinking about the money they have spent.
Industries
Investment in European Foodtech and Agtech
Dealroom, in collaboration with FoodLabs, has presented an up-to-date overview of investments in the foodtech and agtech industry in Europe for the year 2023. According to sources, climate change has already degraded 23% of the EU's agricultural land and reduced production by $177bn.
Of course, pressing problems require solutions. In 2023, European foodtech and agtech raised a record $2bn, just $100m less than the equally record-breaking 2022. However, the current year is expected to be more modest, at around $1.1bn. That's still a solid number.
Notably, the European region attracted more than half of all global investment, overtaking the US for the first time. It is also the second-best sector in terms of growth results.
Key Foodtech solutions:
Alternative proteins, fats, and oils (molecular farming, plant-based, lab-grown, fermentation and mycelium);
Alternative ingredients (sugar, coffee, and cocoa);
Sustainable packaging and biomaterials (food waste, supply chain management and circular economy).
Key Agtech solutions:
Sustainable startups (aquaculture, fertiliser, vertical farming, regenerative agriculture and precision farming);
Regenerative agriculture (biofertilisers, carbon, soil health, genomic breeding and crop protection, biotechnology);
Regenerative rice farming;
Water Management.
Climate Adaptation is a New Climate Tech Fashion
Sifted has published two materials (here and here) about a new direction in climate tech — adaptation tech. It is still not known exactly what it is, but these products are a mixture of deep and climate tech.
Here is a quote from the journalists:
“Adaptation tech includes tech to make homes and workplaces more liveable in a changing climate, agritech solutions such as drought-resistant crops, and water tech to expand access to clean drinking water in areas where it is scarce. It can also include large-scale infrastructure and hardware such as flood defence technology, including nature-based solutions such as using mangroves to prevent coastal flooding.”
In general, climate startups should be noticed. In Europe, they are the number one issue. Well, number two at the most.
One more Report on Foodtech
According to PitchBook, investors closed 246 deals worth $2.2bn in the first quarter of 2024. The authors note stagnation in the industry and do not expect any breakthroughs in the next few quarters. At the same time, unusually high valuations were recorded for companies at all stages. The median pre-money valuation reached $21.6m, up 21% year-on-year. At the early stage, this figure is almost $16m.
The most popular startups were online grocers, restaurant marketplaces, precision fermentation and delivery robots.
European AI Report
Dealroom, in partnership with Roosh, has published an analysis of the AI industry in Europe. Based on the results of the first half of 2024, venture capital investment in AI accounts for 18% of the total, or $11.5bn. Activity has set a new record and is at its highest level in the last six years of observation. In Europe, however, AI is still not at the top of the list, coming third after Health and Energy (look for these, too).
Interestingly, early-stage European startups are most often invested in by Europeans themselves. But at later stages, 80% of investors are Americans.
European AI lags behind the US (four times less investment), but there is still a lot of talent here, so it is generally possible to build startups. The median seed round size is $3.2m, and Series A is $15m.
The strongest AI segments in Europe are Fintech, Drug discovery, Security, and Robotics. Weakest: GenAI basic models and AI chips and processors.
AI Visual Media Takes the Moment
PitchBook analysts are seeing a surge in investment in startups developing AI-generated visuals for enterprise clients. This is a niche subset of generative AI that solves marketing and design problems. For example, editing product shots or enabling sales teams to create personalised videos for prospects as per quote.
In Q1 2024, investors closed 27 deals worth $402m, up 90% from the previous quarter. However, the authors note the risks associated with the industry. These include the expansion of big tech (Apple, Google) with similar solutions, as well as legal and copyright issues. Stability and Midjourney, for example, are regularly sued for using their models to teach the work of real designers and artists.
Q1 E-Commerce
This sector continues to perform well and remains a strong player in venture capital. Investors closed 83 deals worth $1.7bn in the first quarter. Investment is lower than last year, but analysts see this as more of a stabilisation of the industry after the anomalies of the pandemic era (which is still ongoing).
Although COVID-19 has had a significant impact on e-commerce, traditional retail formats are not falling behind, so trade as we know it is not going anywhere. Most of the money has been invested in post-purchase, purchase venue, livestream & social commerce, e-commerce as a service, and storefronts & headless APIs.
Q1 Enterprise SaaS
Venture capital's golden cow and one of the most lucrative industries. In the first quarter, investors closed 666 deals worth $12bn. Although investment is at its lowest level since 2019, local startups are some of the best places to go for money. Analysts are predicting a bright future for the industry despite the decline in investment activity, while the drop in cash flow is a temporary blip.
The situation for exits is particularly good. There were 74 in Q1, 30% more QoQ. Customer relationship management, Enterprise resource planning, Supply chain management, Analytic platforms, and Knowledge management systems were the areas where the most investment took place.
Q1 2024 Mobility Tech
In Q1 2024, the mobility tech industry closed 173 deals worth $6bn. The total is 20% lower than the previous quarter, and overall investors remain cautious. The mobility sector has long been in decline. Its heyday was between 2018 and 2021 when a staggering $93bn was invested in the sector at its peak. However, investment plummeted to $43bn in 2022 and continues to decline at a shocking rate.
The most popular segments were Electric cars and Autonomous driving. For those interested in generative AI, have a look at Voice-activated driving.
Q1 2024 Pharmatech
New from PitchBook, which reviews the sector for the first time. It is difficult for venture capitalists to break into pharmatech because of its consolidation. Nearly the entire market is controlled by nine companies, which do not favour outsiders. However, the development of AI has broken through this corporate wall, opening up a narrow avenue of opportunity for VCs.
By the end of the first quarter, investors had closed 39 deals worth $700m. The trends here are in line with the health industry as a whole: a noticeable spike during the COVID-19 pandemic and a subsequent decline in activity that has reached a low point in recent years. At its peak in 2021, this niche attracted a record $9.4bn.
The authors of the study point to a cooling of the market and a reluctance on the part of VCs to invest here. The reasons are stricter project selection criteria and the industry's reorientation towards more sustainable (safe?) forms of investment.
VCs are now favouring biopharma, while those still in pharmatech are investing in AI & ML Drug discovery and Clinical trials, Advanced therapeutics, and Cell & gene therapy.
Q1 2024 Biopharma
Since we've mentioned biopharma, let's have a glance at it too. This sector looks much livelier than the previous one. In Q1 2024, investors closed 188 deals worth $7.4bn, up 16% QoQ and 23% YoY. Great results. Separately, analysts are noting strong exit activity. In the first quarter of this year, there were 23 exits for $6.9bn. The quarter before last was also something to look at — 26 deals for $5.4bn.
Investors are focusing on Cancer vaccines, led by mRNA technology, Engineered B-cell therapeutics startups, and AI and obesity treatments. One of the main criteria for investment is mature clinical data.
Q1 2024 Digital Health
Let us conclude our review of healthcare reports with the digital health industry. Here, according to Q1 results, investors completed 77 deals worth $1.1bn. The amount increased slightly compared to Q4 2023, while investment activity remains stable. Analysts note a minimal number of exits, with M&A being the most common type of deal.
The authors expect future market consolidation due to reimbursement issues for digital therapeutics.
The most popular themes among investors are Telemedicine, Digital therapeutics & digital treatments, Health coaching & wellness, and Digital care management.
Non-VC-related, but informative and even funny
Andreas Klinger, a serial entrepreneur and angel investor, founded the eu/acc movement with like-minded individuals. It aims to accelerate the development of technology in Europe to catch up with the US. According to the organisation's members, European technology is being held back by bureaucrats, over-regulation and the laziness of startup founders compared to their American counterparts.
25 summer cocktails and how to make them in Punch.
Why people are so obsessed with morning rituals in Vox.
A selection of the best TV series of 2024 from The Guardian.
There is also an interesting article on the nature of dreams.
Global luxury retail data from Savills.
The rarest move in chess, based on an analysis of 5 billion games.
Social media has nothing to do with your mental health, say scientists, so no more talking about detoxing.
Dating apps are losing popularity.
Useful Data, that can come in handy
Revenues of SaaS startups.
Sequoia's research note questioning the frenzy of investment in AI.
Same thing, but from Goldman Sachs. In short, the AI bubble is about to burst and there's no revenue yet. Or maybe none at all.
Worldpay's annual global payments report. Could be useful for fintech people.
Current statistics on unicorns.
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