Good day. The New York State Senate is dropping its proposal to tax capital gains on startup exits beyond the federal level after getting pushback from startup founders and investors, including through an effort by Tech:NYC, a nonprofit advocacy group. The tax proposal was one of many bids across Democratic-led states to boost tax revenue while Republican-led states are increasingly cutting taxes to attract businesses and residents. What calculus are you making in this changing landscape with regard to where to live and work?

Last week, we asked for your outlook on IPOs for the rest of this year. Here are responses, edited for length and clarity:

• Larry Aschebrook, founder and managing partner at G Squared: “We expect the IPO market to remain selective this year, with only the highest-quality companies able to get out. For many others, staying private longer isn't just a delay, but part of a broader shift toward secondaries and structured liquidity as core parts of the exit landscape. In a constrained environment, liquidity is becoming more controlled, episodic, and company-driven.”
   
• Simon Wu, partner at Cathay Innovation: “The IPO market is not shut, but it is highly selective. Capital is concentrating around AI infrastructure, semiconductors, and category leaders, as VCs need to understand whether AI strengthens a company’s business model or disrupts it before investing. A mega-IPO like SpaceX could absorb significant capital and attention in the near term, but it may also help reset the market by giving investors a new anchor for risk appetite and reopening the window in the second half of the year.”
   
• Steve Brotman, founder and managing partner at Alpha Partners: “My view is that the U.S. remains one of the safer places for capital, and the bigger variable for the IPO market is broader global stability. If investors begin to feel that some of the geopolitical uncertainty hanging over the market is easing, I think that could help improve confidence and support a healthier IPO environment in the back half of the year. That said, I’d still expect the window to be selective, with investors rewarding companies that can show real durability, strong fundamentals, and a credible path to value creation.”

And now on to the news...

Orbital data centers. Aetherflux, a space startup developing orbital data centers, is raising a new funding round at a $2 billion valuation, according to people familiar with the situation. The startup, founded and led by Baiju Bhatt, co-founder of Robinhood Markets, aims to raise between $250 million and $300 million in its Series B round, some of the people said. Existing investor Index Ventures is leading the deal, those people said.

• Aetherflux plans to launch its first orbital data center in the first quarter of 2027. The company has said solar energy will supply the data centers located on its satellites with the electricity needed to perform artificial-intelligence computations. It’s also developing ways to deliver solar energy from orbit to Earth using lasers.

A U.S. federal judge on Thursday halted the Trump administration’s designation of Anthropic as a supply-chain risk, issuing a ruling that the government trampled free-speech protections when it classified the AI company as a security threat and barred government use of its models. Judge Rita F. Lin of the Northern District of California in her decision ordered the Trump administration to desist from applying the president’s directive that federal agencies stop using Anthropic’s technology, and from implementing its designation of the company as a risk to the national security supply chain. 

Reflection, a startup backed by chip giant Nvidia that is leading an effort to create freely available U.S. AI systems, is in talks to raise $2.5 billion at a valuation of $25 billion, according to people familiar with the matter. The company is one of a handful of Nvidia-linked startups that are seeking to build a network of “open source” AI models, which businesses, labs and universities can use and repurpose according to their needs. JPMorgan Chase is in talks to participate in the round through its newly formed Security and Resiliency Initiative, which was created in December to back U.S. companies in industries critical to the economy and national security, the people said.

The New York State Senate is dropping its proposal in its budget plan to tax capital gains on startup exits, which are currently excluded from federal taxes under the Qualified Small Business Stock regime, after getting pushback from startup founders and investors. “We are no longer pursuing it,” said Mike Murphy, communications director for the New York State Senate Democratic Majority.

Advocacy group Tech:NYC had sent a letter with about 1,100 signatures to state lawmakers this week, saying the proposed tax increase would weaken New York’s startup ecosystem. “We were able to thread the needle by bringing real stories and strong engagement from across the tech community to the table in a way that was constructive,” said Julie Samuels, the group’s president and chief executive.

“We got a lot of feedback on the proposal, particularly as it relates to early employees at small companies,” said Democratic state Sen. Andrew Gounardes, who sponsored the proposal to tax QSBS gains. “I question the wisdom of automatically coupling New York to federal tax changes that have huge budget implications, and I'll continue to look for ways to protect New York from irresponsible federal budget decisions."

—Yuliya Chernova

Funds

Kleiner Perkins raised $1 billion for its twenty-second venture fund, and $2.5 billion for a separate vehicle targeting growth-stage investments.

Climate Investment closed its $450 million Decarbonization Acceleration Fund. The growth equity vehicle targets companies across sectors including energy, industry, transport and buildings, and has made four investments to date.

Austin, Texas-based Overmatch Ventures raised $250 million for its second fund to continue investing across sectors including deep tech, defense and space.

People

Nyca Partners promoted Jasleen Kaur to partner and Agastya Gupta to principal. Prior to joining Nyca, Kaur was a principal at CE Innovation Capital. Gupta was previously an investment associate at Goldman Sachs Growth Equity.

Agentic AI-powered patient communications provider Artera.io appointed Damon Lanphear as chief technology officer, and promoted Nicole Ossey to senior vice president of people. Lanphear joins Artera from Amazon. Ossey was previously at Knock.

Averna Therapeutics, a startup developing novel genomic medicines based on gene insertion technology, named Robert Mabry as chief scientific officer and Richard Morris as chief financial officer. Mabry joins the company from Hillstar Bio, where he served as chief executive officer. Morris was most recently CFO at Carisma Therapeutics.

Shield AI, an aerospace and defense technology provider, raised $2 billion in new funding, giving the company a $12.7 billion post-money valuation. The financing includes a $1.5 billion Series G round from Advent International, the strategic investment group of JPMorganChase's Security and Resiliency Initiative, Snowpoint Ventures, Innovation X Advisors, Riot Ventures, Disruptive, Apandion and others. Shield AI will use a portion of the funding to acquire defense software company Aechelon.

Harvey, a San Francisco-based startup providing an AI operating system for legal work, scored $200 million in new funding, valuing the company at $11 billion. GIC and Sequoia Capital co-led the round, which included participation from Andreessen Horowitz, Kleiner Perkins, Conviction Partners and others.

Xona, a Burlingame, Calif.-based satellite navigation technology startup, landed $170 million in Series C funding. Mohari Ventures Natural Capital led the investment, which included additional support from Craft Ventures, Iconiq, Woven Capital and others.

Cents, a New York-based business management platform for laundromats and dry cleaners, closed a $140 million Series C round. Sumeru Equity Partners led the investment, with Managing Partner Sanjeet Mitra joining the company’s board. Camber Creek also participated in the round.

Granola, a London-based meeting notes app, secured $125 million in Series C financing at a $1.5 billion valuation. Danny Rimer at Index Ventures led the round, which saw participation from Mamoon Hamid at Kleiner Perkins, in addition to Lightspeed Venture Partners, Spark Capital and NFDG.

Dash0, an agentic observability platform, nabbed $110 million in Series B funding, valuing the company at $1 billion. Balderton Capital led the round, with Rana Yared joining the board.

NoTraffic, an Overland Park, Kansas-based AI-powered mobility platform for traffic management, snagged $90 million in Series C funding led by PSG Equity.

Pinnacle Medicines, a startup developing new oral peptide therapeutics, completed an $89 million Series B round. LAV and Foresite Capital led the investment, which included contributions from Quan Capital, Hankang Capital, OrbiMed and others. Pinnacle has offices in Shanghai and Doylestown, Pa.

Gilgamesh Pharma, a New York-based startup developing breakthrough therapies for psychiatric and neurological disorders, closed a $60 million Series A round. Satori Neuro led the funding, which saw participation from investors including Prime Movers Lab.

Normal Computing, a New York-headquartered startup building AI software for semiconductor design and thermodynamic computing chips, grabbed $50 million in strategic funding led by Samsung Catalyst Fund.

Terrestrial Bio, a Boston-based biotech company developing a skin patch and applicator for administering therapies, raised $50 million in Series C funding. RA Capital Management led the round, which included support from Engine Ventures and others. The company was formerly known as Vaxess Technologies.

Origin, a U.K.-based employee benefits platform, obtained $30 million in Series A+ funding led by Notion Capital.

• Fannie Mae to Accept Crypto-Backed Mortgages for the First Time

• Trump Administration Plans to Require Higher Wages for H-1B Visa Holders
   
• The SpaceX IPO Will Be Just as Unconventional as Musk Himself
   
• Sheryl Sandberg’s Lean In Sheds Quarter of Staff, Will Focus on Manosphere Fight
   
• Are Bots Replacing Workers? These Skeptics Aren’t So Sure
   
• Arm’s Timing Is Good, but Big Chip Move Now Has to Go Perfectly

• David Sacks says his time as Trump’s crypto and AI czar has ended (CNBC)
   
• AI is just another technology Americans don’t like but can’t stop using (Washington Post)

This newsletter was compiled by Matthew Strozier and Zachary Cole.

Share your tips, comments and questions: vcnews@wsj.com

The team: Matthew Strozier, Yuliya Chernova, and Brian Gormley.

Join us on LinkedIn.