Venture Monitor: A Rollercoaster Year for the VC Landscape

Challenging Times, but Unwavering Resilience

The PitchBook-NVCA Venture Monitor released its findings, revealing that 2023 was a year of fluctuating fortunes for the venture capital landscape. Despite a noticeable slowdown in activity, typified by a significant drop in deal count during the fourth quarter, the year ended on a note of resilience. Although the numbers reflect a 28% dip from the peak quarter in 2022, it’s worth noting that 2023 still surpassed the activity levels of all quarters prior to 2021, with the exception of Q1 2020.

U.S. Public Markets and the Economic Outlook

The U.S. public markets closed the year on a positive trajectory, hinting at a potential easing of economic strains. One encouraging sign was the continued decline in inflation, sparking anticipation of potential interest rate reductions in 2024.

VC Firms: Seeking Opportunities Amidst the Turbulence

Amidst the challenging environment, venture capital (VC) firms demonstrated remarkable tenacity in pursuing deals across all stages. The report highlighted the most active firms that navigated through the tumultuous 2023, showcasing an undeterred commitment to finding new opportunities.

Weekly Roundup: A Dive into Key Market Events

Monday: Profit Milestones and Executive Appointments

• Itau closed 2023 with a profit of R$ 35.6 billion, signaling a 15.7% increase from the previous year and aligning with market consensus. The fourth quarter profit stood at R$ 9.4 billion, with an annual ROE of 21% and a quarterly ROE of 21.2%.
• Unico named Sergio Chaia as CEO to spearhead global expansion efforts, leveraging his extensive experience after serving as an advisor to Unico over the past year.

Tuesday: New Ventures and Strategic Moves

• Traive, a Brazilian finance platform for the agricultural chain, secured a later stage round of USD20M led by Astella.
• FUNSES1, a Private Equity Fund supported by the Sovereign Fund of the Government of Espírito Santo, announced investments in four companies, including Multifidelidade, naPorta, Conecta, and Frota 162, amounting to approximately R$ 2.7 million.
• Itaú announced preparations for the launch of a super app, targeting a potential user base of over 15 million customers.
• Mevo, a healthtech company, set optimistic targets for 2024, aiming to double its revenue by the year’s end compared to its 2023 results.
• American Webull, a digital brokerage unicorn, initiated operations in Brazil after acquiring H.H. Picchioni and awaiting approval from the Central Bank to finalize the deal.

Wednesday: Profitable Growth and Environmental Investments

• Uber reported a significant profit of $1.43 billion in 2023, signaling its first annual positive result as a public company. The company anticipated continued growth in the first quarter of the following year, marking a strategic shift from prioritizing growth over profits.
• Vertown, a waste management startup, secured R$ 7 million from Corporate Venture Capital (CVC) funds to fuel its ambitious plan of achieving a tenfold revenue increase over the next three years.

Thursday: A Glimpse into Market Dynamics

(Content not available)

Investment Opportunities in Brazil’s Fintech and Virtual Factory Industries

General News:

Deals:

• Cogtive, a platform that collects and organizes data to provide diagnosis and action plans to clients in the virtual factory industry, attracted a R$ 10 million investment from Indicator. In addition to addressing visibility issues, Cogtive also provides diagnostics and action plans based on the collected data.

• Plano, a Brazilian fintech aimed at transforming financial education in the country, has received an investment of R$ 2.2 million. This investment marks the first phase of the company’s seed round, with participation from groups such as Anjos Do Brasil, Poli Angels, FEA Angels, and funds including BossaInvest, Sai do Papel, Quintal Ventures, Levain Ventures, and Westwood Capital.

Friday

Deals:

• Itaú has just announced the acquisition of Avita, a judicial surety brokerage created from scratch by Prisma Capital in 2019. The acquisition value was not disclosed, but the bank stated that the company holds a portfolio of over R$ 60 billion in judicial surety and has issued R$ 400 million in premiums since its foundation.

• PlayBPO receives investment from Bossa Invest. The undisclosed amount will be used to enhance the solution and further integrate with financial platforms. The round also included co-investment from DOMO.VC, RIA (Angel Investors Network, a partnership between Anjos do Brasil and the Association of Technology Companies of Santa Catarina), and follow-on from Conta Azul.

• 4MDG attracts BR Angels and Darwin with platform for organizing data. The company, which launched a no-code platform for data cleansing and governance for corporate clients, received an investment of R$ 4 million from BR Angels in a round with participation from the accelerator Darwin Startups.

What did I learn from readers?

Insights from recent discussions with industry people on the following theme: AI investing & CVC participation.

Corporate investors are significantly investing in generative AI startups, leading to tensions with traditional venture capitalists (VCs) who are being challenged by high valuations and complex deal terms.

Last year, corporate venture capitals (CVCs) were involved in 80% of the venture capital deal value in generative AI, according to PitchBook data. This involvement raises concerns among some investors about its long-term impact on startups.

Major investments from corporates include Amazon’s up to $4 billion investment in Anthropic in September, Nvidia’s participation in Cohere’s $270 million Series C in June, and Microsoft’s $10 billion investment in OpenAI last January. Microsoft and Nvidia also led a significant funding round for Inflection AI in June.

VCs are expressing frustration over the influence of corporate investors in the ecosystem, particularly due to rising valuations and deal terms that complicate future investments. Some VCs advise startups to avoid corporate venture capital, citing problematic deal terms and potential distractions at early stages, and note that corporate investors often have different objectives compared to traditional VCs.

The competition from corporate investors leading to inflated valuations is a major concern. It’s suggested that traditional VCs can help moderate these high valuations. However, concerns remain about the impact of these inflated valuations on the broader ecosystem.

Despite these challenges, the influx of corporate investment into generative AI is seen by some as a validation of the startups’ efforts and a sign of confidence in the industry.

What am I reading?

What am I listening to? What am I watching?

Quote of the week:

“When you are too confident, that’s when you hurt yourself” – Candide Thorax

Originally published on my Substack.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.