Good day. While the number of seed deals has dropped 37% since the start of 2021, median valuations are up just as much, according to Carta, which analyzes data from clients that use its equity-management software. 

By contrast, seed round valuations and the number of seed deals were rising in tandem in 2019 and 2020. Carta looked only at priced seed rounds, where the price per share was set at the time of the deal.

Typically, you would expect a correlation. In a downturn, investor demand is lower so fewer deals are completed, pushing valuations down. That has been happening for Series C and D rounds, but not for seed and Series A, according to Carta.

“It’s a little weird to see this big disconnect,” said Michael Ewens, a professor of finance at Columbia Business School. But venture is not a normal market, he added, noting, “It’s not a liquid market, the pricing is opaque, it doesn’t always behave like a liquid public market would behave, in the short term.”

Peter Walker, head of Insights at Carta, posted the findings on LinkedIn. Some respondents to the post said hot, highly valued AI deals are driving the high valuations and that insider rounds may be keeping valuations artificially high. Walker responded that the dynamic also holds for non-AI startups. Ewens said there may be another reason: “The industry is seeing light at the end of the tunnel.”

In other words, some venture firms are increasing the pace of capital deployment after holding back, lifting valuations for select deals.

Is there a problem with rising early-stage valuations and lower ones at later stages?

“Biggest implication for me is just that if early-stage valuations remain high and later-stage valuations remain depressed (relatively speaking), returns might be squeezed. But it’s possible that late-stage valuations will rebound if the IPO market opens again,” Walker said in an email to WSJ Pro.

So what’s next?

“Generally, in markets when prices are high, sellers come in and take advantage of that,” Ewens said.

Which is to say, once more entrepreneurs recognize valuations are rising, they might launch startups or pitch existing ones more frequently, resulting in more seed deals.

But Ewens said he doesn’t like to make predictions about venture, which can behave unexpectedly. “I get more surprised when it’s stable and boring.”

And now on to the news...

TikTok sued by multiple states. TikTok faces lawsuits from more than a dozen U.S. states that allege the popular video platform, which has attracted attention for the sometimes risky challenges it hosts, has helped put young people in danger and harmed their mental health, The Wall Street Journal reports.

• A bipartisan coalition of 14 attorneys general on Tuesday announced the filing of legal actions against TikTok in their own state courts.
   
• “TikTok claims that their platform is safe for young people, but that is far from true,” said New York Attorney General Letitia James, who leads the coalition along with California Attorney General Rob Bonta.
   
• TikTok says it strongly disagrees with the claims and believes many of them are inaccurate and misleading.

A subsidiary of troubled Swedish battery maker Northvolt has filed for bankruptcy as the company works through a strategic overhaul amid a cooling global electric-vehicle market, WSJ Pro reports.

• Northvolt Ett Expansion has no direct employees and was created to manage the expansion of the Northvolt Ett gigafactory in northern Sweden, but that project was shelved as part of a sweeping cost-saving plan outlined last month.
   
• Financing at the battery maker has become increasingly stretched after a period of rapid expansion, while electric-vehicle sales have slowed sharply in some key markets this year on concerns over new trade tariffs, government incentive withdrawals, a sluggish rollout of charging infrastructure and stiff competition from lower-cost Chinese rivals.

California’s AI safety act is dead following Gov. Gavin Newsom’s veto last week, but its specter lingered over technology leaders some 3,000 miles away who remained spooked about what future regulation could look like, WSJ reports.

The technology sector remains divided over whether Newsom made a mistake by using his veto, but SB 1047’s introduction and ultimate demise raise bigger questions, including whether regulation should target AI model makers or AI applications and whether it should be directed more by states or federal agencies.

Funds

Fuze Fund launched Fuze Venture Growth Fund I LP, a $30 million fund to invest in minority, women and veteran founders.

People

Droplette, a skincare technology startup, appointed Jodi Kaplan as chief executive officer. She was previously president at Dr. Barbara Sturm Molecular Cosmetics.

Asaas, a Brazil-based provider of financial automation technology for small and medium-sized enterprises, secured an 820 million Brazilian real (almost $150 million) Series C investment led by BOND.

EvenUp, a San Francisco-headquartered personal injury AI and document generation provider, scored $135 million in Series D funding led by Bain Capital Ventures.

Human Security, a New York-based cybersecurity startup, picked up over $50 million in growth capital led by WestCap.

Blue Energy, a Bethesda, Md.-based startup building modular nuclear power plants in shipyards, emerged from stealth with $45 million in Series A funding co-led by Engine Ventures and At One Ventures.

xFarm Technologies, a Switzerland-based startup focused on the digitalization of the agri-food sector, closed a €36 million Series C round led by Partech.

Facet, a Baltimore-based financial planning startup, added $35 million in new funding led by Multiplier Capital.

Logik.io, a Deerfield, Ill.-based CPQ platform, landed $25 million in Series B funding from investors including Emergence Capital and Salesforce Ventures.

Claim, a Boston-based social app helping Gen Z discover new brands, collected $12 million in Series A funding led by VMG Partners.

Kiva AI, a San Francisco-based platform delivering data solutions for the development of specialized AI applications, closed a $7 million seed round led by CoinFund.

Third Dimension AI, a San Francisco-based 3D generative AI startup, was seeded with a $7 million investment led by Felicis.

Prime Security, a New York-headquartered startup enabling security teams to build guardrails into the software design phase, emerged from stealth with $6 million in seed funding led by Foundation Capital.

• Short-seller Hindenburg goes after Roblox
   
• Antitrust officials weigh splitting Google, others
   
• Zeta Global to buy marketing tech company LiveIntent in $250 million deal
   
• Geoffrey Hinton, godfather of AI who expressed alarm over the technology, shares Nobel Prize in physics
   
• OpenAI, Hearst strike deal for newspaper, magazine content integration
   
• Samsung apologizes for falling behind in AI chips race
   
• X can resume operations in Brazil after paying millions in fines
   
• Cost of producing green hydrogen makes it prohibitive, says study
   
• Vodafone, Google expand partnership with billion-plus dollar deal
   
• At a Brooklyn warehouse, robots are reshaping the grocery-delivery business
   
• Decision time for GM in China: stay, scale back or go

• They were made without eggs or sperm. Are they human? (Atlantic)
   
• Tesla's robotaxi to face questions, scrutiny at unveiling this week (Reuters)

This newsletter was compiled by Yuliya Chernova and Zachary Cole.

WSJ Pro Venture Capital is a premium service of The Wall Street Journal. We cover venture capital and the global startup ecosystem. Share your tips, comments and questions: vcnews@wsj.com

The Team: Matthew Strozier, Yuliya Chernova, Brian Gormley, Angus Loten and Marc Vartabedian.

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