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Generative AI Spurs Secondary Market Deal Making
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By Yuliya Chernova, WSJ Pro
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Good day. The secondary market for shares of privately held companies picked up in October, according to data provider Caplight, which aggregates transaction data from more than 70 broker-dealers.
Last month, 69 secondary deals for private company shares totaling $124 million transpired, up from $53 million via 42 transactions closed in the prior month, according to the data provider.
Buyers were increasingly interested in purchasing shares in generative AI startups. “That was an unexpected strong catalyst for a lot of the demand that we saw come in in October,” said Javier Avalos, chief executive and co-founder of Caplight.
In October and through the early part of November, OpenAI and Cohere were the second and third most bid-for names, per Caplight’s data.
Another trend that helped push volume up last month was that more companies began to embrace down rounds, Avalos said. Down rounds, where the valuation is lower than in the prior financing, give secondary buyers more confidence in the pricing, which helps secondary deals clear, he said.
Generally, small blocks of employee shares continue to dominate the market this year. Some 70% of all secondary trades that took place in 2023 so far were for less than $1 million each, per Caplight. Avalos said it indicates employees are willing to settle for lower prices to get some liquidity, given that the timing of the IPO market reopening remains uncertain.
Pricing on secondary markets remains depressed, though it has started to climb from the bottom valuations hit in June. The Caplight Top 20 Index, which tracks the secondary market performance of the largest late-stage, venture-backed private companies, is in negative territory, though the gap between the Caplight index and the Nasdaq Composite index has started to narrow.
There are some signs in the broader economy that may spur on the secondary market.
For one, more people believe the Fed may start to cut interest rates, which would free up more capital to go into riskier bets. There are also reports of private companies, such as Shein, gearing up for IPOs. A stronger IPO market typically correlates with a strong secondary market. Finally, if more down rounds happen in the unicorn companies, that could also help the secondary market rebound, Avalos said.
And now on to the news...
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PHOTO: GABBY JONES/BLOOMBERG NEWS
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Regulator raises concerns. The U.K. Competition and Markets Authority said it has provisionally found Adobe’s planned $20 billion acquisition of collaboration-software company Figma would likely harm innovation for software used by the vast majority of U.K. digital designers, The Wall Street Journal reports.
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The regulator said Tuesday that, following a detailed Phase 2 investigation, it provisionally found that the deal would eliminate competition between two main companies in product-design software, reduce innovation and the development of new competitive products, and remove Figma as a threat to Adobe’s flagship Photoshop and Illustrator products.
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“We are disappointed in the CMA’s findings and disagree with the CMA’s perspective on this transaction,” an Adobe spokesperson said.
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200 Million
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Discounts drew shoppers out in record numbers over the Thanksgiving weekend, with more than 200 million people shopping over the five-day period from Thanksgiving to Cyber Monday, according to the National Retail Federation and Prosper Insights & Analytics.
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What a Drop in Promotions for Black Workers Says About Corporate Diversity Efforts
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U.S. companies have lost momentum in promoting Black professionals into management, according to new data from McKinsey & Co, WSJ reports.
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After the May 2020 murder of George Floyd set off a national conversation about race, equity and opportunity, American companies set ambitious goals for advancing Black talent in their ranks. They have made some strides in hiring and promoting more Black professionals, especially at the highest levels of the company; there are now eight Black chief executives in the Fortune 500, compared with four in 2020.
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Yet on the critical first promotion to management, new McKinsey data now show U.S. companies are no longer elevating Black professionals at the higher rate of a couple of years ago, and have reverted to nearly the same promotion rates for Black staff as in 2019.
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The Newest Airline Climate Solution? Burying Sawdust
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American Airlines is joining the race to remove carbon from the atmosphere, tapping a novel method that is much cheaper than many existing approaches and could boost the fledgling industry, WSJ reports. The airline company is purchasing credits from Graphyte, a startup that uses bricks of carbon-absorbing plant material to sharply lower costs, potentially making carbon removal a widely used climate solution earlier than anticipated. It is one of the first carbon-removal deals by an airline and shows how some of the biggest corporate emitters are trying to find new ways to cut their environmental footprint.
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Funds
NXTP, an investor in early-stage business-to-business startups in Latin America, closed its third fund with $98 million in commitments, which is more than twice the size of the firm’s previous fund. Founded in 2011, NXTP has offices in Buenos Aires, São Paulo and Mexico City.
Entrepreneur Media launched Entrepreneur Ventures to invest up to $10 million in 150 to 200 pre-seed stage startups, with a focus on the consumer technology and consumer packaged goods sectors.
People
Birdy Grey, which offers bridesmaid dresses along with gifts and accessories for the bridal party, appointed Tanya Hersh to the post of chief marketing officer. She was most recently at Boosted Commerce.
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Pika, an artificial-intelligence video platform, raised $35 million in Series A funding led by Lightspeed Venture Partners.
CoordinateHQ, a Redwood City, Calif.-based project-management system for client service organizations, closed a $5.5 million seed round led by Initialized Capital.
Prelude, a Brooklyn, N.Y.-based provider of artificial intelligence-powered supply-chain technology to the cannabis ecosystem, scored $5.2 million in seed funding from Rackhouse Ventures and others.
Construex, a marketplace for the construction and architecture sectors in Latin America, was seeded with a $4.6 million investment from Fifth Wall and others.
Monterra, a San Francisco-based startup that automates the design and planning of electric vehicle charging installations, landed a $2.5 million pre-seed round led by Base10 Partners.
BusCaro, an app-based platform for Pakistani commuters, picked up $1.5 million in pre-seed funding led by Orbit Startups.
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PHOTO ILLUSTRATION BY EMIL LENDOF/THE WALL STREET JOURNAL; ISTOCK
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