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| The Daily Pitch |
| PE, VC and M&A |
| Your edge on global private capital markets |
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| Just 4 deals made up nearly half of AI VC funding in Q3 |
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By Jacob Robbins, Technology Reporter
Just four of the 1,086 VC deals recorded for AI startups in Q3—funding rounds for xAI, Anthropic, Nscale and Mistral—accounted for nearly half of the quarter’s total deal value, according to our latest Emerging Tech Research.
As fears over a potential AI bubble fester, VCs are backing fewer companies—but investing heavily into that select group. |
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Investors are continuing to pour capital into startups developing large language models because nearly every AI application will be built on top of them, according to Dimitri Zabelin, a senior AI analyst and author of the report.
This segment, unlike companies developing applications that use AI, or vertical applications, has attracted the most capital by far.
"You could say, we don't know who the winners are going to be yet at the vertical application layer," he said. "You're fairly certain, though, it's going to be built on these foundational models."
Anthropic, xAI and Mistral all develop LLMs. In July, Elon Musk's xAI raised $10 billion in debt and equity from Morgan Stanley. September saw Anthropic raise $13 billion from Lightspeed, Iconiq Capital and others, while Mistral raised €1.7 billion ($1.96 billion) from investors including Index Ventures and Andreessen Horowitz.
But then there's Nscale, which raised $1.1 billion in September from investors like Point72 and G Squared. The company is a GPU cloud startup similar to CoreWeave, which rents out remote access to Nvidia GPUs, allowing customers to train and fine-tune AI models.
The "picks and shovels" play is gaining more traction as AI continues to devour computing resources and prompt the buildout of data centers.
According to the Q3 research, more investors are focusing on backing AI-specific semiconductor startups, with funding exceeding the recent historical average of $1.9 billion. In Q3, overall deal value in the segment reached $3.8 billion.
The surge is driven by an understanding that there are more opportunities in the AI space beyond just LLMs, Zabelin said.
"Thinking like a VC, I wouldn't put all my money into just one of those [LLM] companies," he said. "I'd want to diversify." |
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| A message from Oracle NetSuite |
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| CFO of tomorrow: Your AI guide |
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You don't need to become a tech guru overnight, but in order to position yourself as the CFO of tomorrow, you need to understand AI’s potential in a finance practice.
AI expert Glenn Hopper breaks down the roadmap in his best-selling book: Deep Finance. Download it for FREE today to learn how to harness the power of AI for business benefit. Get my copy |
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• Revolut has reached a $75 billion valuation following its fifth share sale. The deal comes as the UK-based digital bank aggressively pursues international growth, recently pledging $13 billion to support expansion. Read more
• Our recent Global Fund Performance Report covers the selective momentum in Q1 across private markets. Preliminary Q2 results show real estate landed its strongest quarter since early 2022. Read the report
• Startups focusing on animals and robots are bucking an overall slowdown in VC funding for the agtech sector, according to our recent Emerging Tech Research. Read it now |
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| Wall Street banks snap up venture secondaries firms in liquidity push |
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| (Spencer Platt/Getty Images) |
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By Michael Bodley, Senior Venture Capital Reporter
Venture secondary transactions have been heating up—so much so that Wall Street is on an acquisition spree to double down on the assets.
In the last several weeks, financial services giants have struck deals to acquire at least three secondary shops.
Goldman Sachs agreed to acquire longtime VC secondaries firm Industry Ventures. Morgan Stanley made a deal to buy secondaries marketplace EquityZen, and Charles Schwab announced plans to scoop up the publicly traded secondaries exchange Forge Global.
The deal streak illustrates how Wall Street is playing catch-up with its startup liquidity offerings for both institutional and retail clients.
Banks, well aware of the growing number of venture deals and valuations, are pushing VC strategies through their private wealth channels. But they often lack the in-house expertise and deal pipeline to increase market share on their own.
"These acquisitions do make sense, both for EquityZen and Forge," said Emily Zheng a PitchBook senior VC analyst. "They are playing in this niche market, where they're democratizing access for venture capital."
The trio of deals is also the latest sign of the consolidation in what has been a fragmented market, according to Aziz Gilani, a general partner at Mercury.
"My expectation is that all [secondary brokers] pair up with a big bank," Gilani said. "That just seems like the logical way to go."
Secondaries are often the only way for many investors to get their hands on the stock of highly sought-after VC-backed companies like OpenAI and SpaceX.
LPs, meanwhile, are pressuring their GPs to err on the side of caution in pricing secondaries, as valuations have seesawed since 2021 highs. And GPs have been mindful of portfolios heavily inflated by a small number of prized holdings.
"When we're evaluating diligence in fund portfolios, we tend to discount pretty heavily a lot of stuff that's on the books still at marks that we don't think are necessarily realistic," said Aman Verjee, a general partner at secondaries firm Practical Venture Capital. "But it's mostly the value of that unicorn or a small number of companies that are driving most of the actual exit value." |
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Smart reads that caught our eye.
• Fei-Fei Li has been publishing research on AI for 25 years, but didn't expect it to be this massive. In a Bloomberg interview, Li emphasizes using AI tools for the right reasons and the power people have to impact its development. [Bloomberg]
• A new biotech innovation is using AI to diagnose rare diseases, and it's better than Google's DeepMind. How scientists in Barcelona built popEVE to flag human genetic mutations that cause rare diseases. [Financial Times]
• Musk wants X to be "purely AI," and is trying to replace all of the social media company's engineering staff with Grok. Two brothers from Ukraine are helping him do just that. [The Information] |
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