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Work-Bench GP Jonathan Lehr on Realigning Funding Rounds
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Good day. Following a boom in 2021, higher interest rates, lofty valuations and greater scrutiny on business fundamentals have all contributed to a slowdown in early-stage venture investing.
But there is also a growing sense that the lines between different funding stages have been blurred in recent years. Amounts raised in seed rounds have been creeping closer to those raised in prepandemic-era Series A rounds, and so on up the ladder, investors and analysts say.
What impact did slumping VC markets have on that shift over the past year? What does it mean for early-stage investors? We asked Jonathan Lehr, co-founder and general partner at venture investing firm Work-Bench. Edited excerpts are below:
WSJ Pro: Overall, how are startups doing out there?
Lehr: We did a midyear check-in back in July and found that while seed held up quite well, everything else decreased year-over-year. While Series As were reduced—a 36% year-over-year reduction in 2023, if you annualize the half-year 2023 data—they actually fared much better than Series B rounds and later, which, frankly, fell off a cliff.
WSJ Pro: What has changed in the market over the past year?
Lehr: The key trend we're seeing is that while Series As were getting done quite frequently in the $15 million-$20 million range during peak 2021 activity, they've reverted back to pre-Covid levels in terms of round size, typically $10 million, and valuation in the $40 million-$50 million range. Also reverting back are the metrics assessing product development, early go-to-market progress and large market opportunities.
WSJ Pro: Is that reversion a good or bad development for startups and their investors?
Lehr: In our opinion, this is healthy and can lead to founders building more sustainable companies by not getting too ahead of their skis, from a valuation perspective, too early in their company's lifecycle. Seed rounds still have some room to come down, given how many seed raises we saw occur with valuations in the high $20 million, $30 million, and even sometimes $40 million to $50 million, which would make it difficult to raise a Series A given the return to pre-Covid round dynamics.
Note to readers: We will not publish a newsletter on Monday in observance of the U.S. Labor Day holiday. We will be back on Tuesday.
And now on to the news...
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The lobby of the Royal London Asset Management building in Birmingham, England, which is managed by JLL. Its AI system notched more than 20% of energy savings in a year.
PHOTO: ROYAL LONDON ASSET MANAGEMENT.
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AI steps in to lower carbon footprint of buildings. Keeping our buildings running contributed roughly 26% of global energy-related greenhouse-gas emissions in 2022, according to the International Energy Agency. Now, AI is starting to help buildings go greener, The Wall Street Journal reports.
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JLL, which manages billions of square feet of commercial real estate around the world, has been making a string of investments to bring AI systems to companies looking to cut their emissions. The business case: Eco-friendly buildings charge higher rents and are on the market for less time. JLL says it expects 56% of organizations to pay a premium for sustainable spaces by 2025.
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Venture-capital firm Fifth Wall’s $500 million fund is focused on decarbonizing buildings and invests roughly a third of its money in startups with some kind of AI offering, both in software and hardware, the fund’s co-manager Greg Smithies said. A bigger focus is using more sustainable materials, such as concrete and steel made with renewable energy.
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Companies Will Use Generative AI. But Will They Tell You About It?
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Google DeepMind’s new tool for identifying images generated by artificial intelligence raises questions for companies about when they should flag AI-produced content for their customers, WSJ Pro reports.
The tool, known as SynthID, was released Tuesday as a beta version in partnership with Google Cloud. SynthID works by adding a watermark to images created by Google Cloud’s text-to-image generator, Imagen. By scanning an image for its digital watermark, the tool can assess the likelihood that an image was created by Imagen.
“We are the first cloud provider to give our customers the ability to embed a watermark directly into the image of pixels, invisible to the human eye, without impacting the image quality,” said June Yang, vice president of cloud AI and industry solutions at Google Cloud.
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Amazon-Business Acquirer Benitago Files for Bankruptcy
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Benitago, one of a slew of investment groups that acquire businesses selling their products through Amazon, has filed for bankruptcy, less than two years after raising $325 million in funding, WSJ reports.
The New York-based online seller sought protection from creditors Wednesday in the U.S. Bankruptcy Court in Manhattan, listing both assets and liabilities ranging from $50 million to $100 million.
The company, founded in 2016, operates in a small but lively wing of the e-commerce market in which groups of investors buy small third-party sellers on Amazon’s online marketplace and run them as a group, providing greater marketing and logistics expertise to the businesses.
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Special Report: Navigating AI
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Generative AI is playing an increasingly important role in the workplace, bringing with it promises of economic advances as well as painful disruption. Here’s how you can leverage this transformative technology while managing its risks and rewards:
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People
Sustainability-focused G2 Venture Partners hired Jasper Platz and Vaibhav Sharma as investors. Platz was previously at Summon. Sharma joins the firm from The Carlyle Group’s Global Infrastructure Fund.
Multiverse, which offers professional apprenticeships, appointed Gary Eimerman as chief learning officer, Alex Varel as chief revenue officer and Asha Aravindakshan as U.S. general manager. Eimerman was most recently chief product officer at Pluralsight. Varel was previously at Zscaler. Aravindakshan was most recently vice president of operations at Sprinklr.
Astraveus, a Paris-based cell and gene therapy manufacturing startup, appointed Etienne Fradet as chief technical officer. He was previously at Stilla Technologies.
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Beta Bionics, a Concord, Mass.-based diabetes management provider, secured $100 million in Series D funding co-led by new investors Sands Capital and Omega Funds.
Otto, an Austin, Texas-based customer engagement platform for veterinary clinics formerly known as TeleVet, scored $43 million in Series B funding. Mercury Fund participated in the round, with Venture Partner Heath Butler joining the company’s board.
Hyperproof, a risk and compliance management startup, closed a $40 million growth investment. Riverwood Capital led the funding, which included participation from Toba Capital. Ramesh Venugopal, partner at Riverwood Capital, joined Hyperproof’s board.
Allseated, a San Francisco-based startup providing the hospitality industry with 3D visualization, floor plan design tools and virtual tours through digital twins, picked up a $20 million investment from Level Structured Capital and others.
TruLite Health, a Tempe, Ariz.-based startup focused on breaking the chain of systemic inequity in healthcare, completed a $7 million Series A round led by Osage Venture Partners.
Speak, a San Francisco-based AI language tutor startup, landed a $16 million Series B2 round. Lachy Groom led the investment, which included participation from OpenAI Startup Fund and others.
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Microsoft Teams is an app used for videoconferencing. PHOTO: JAKUB PORZYCKI/ZUMA PRESS
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VC firm Growth Warrior Capital launches AI-powered pitch deck builder (Business Insider)
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Venture capital with a difference: From an MBA to social impact investment (BusinessBecause)
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Zeal Capital adds NEA healthcare specialist as it raises Fund II (Venture Capital Journal)
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