Contrary Research Rundown #32
Unpacking the funding environment, and new memos on Chainalysis, Relativity Space and more
The Crypto Creed
Last week, we published our latest deep dive "The Crypto Creed." Guest writer Kyla Scanlon shared her view on the history of crypto, the original idea of improving systems, and how speculation disrupted that vision. She unpacks the question: "Where do we go from here?" Take a look!
This week, we wanted to reflect on the funding environment so far this year. Global startup funding dropped to $76 billion in Q1 2023, a decrease of $86 billion compared to the same quarter in the previous year. However, compared to Q4 2022, total startup investments increased by 1%. Deal volume has been declining since Q1 2022, an indication of the tech industry’s continued struggles amidst high interest rates and economic uncertainty in 2023. Last quarter, funding was down across all funding stages from between 44-54% year over year. Investors at each stage scaled back as they took increased time to assess new investment opportunities and provide guidance to existing portfolio companies. As a result, investors have a record amount of dry powder but are deploying capital slowly.
While quarter-over-quarter funding was stagnant, OpenAI’s $10 billion raise in January and Stripe’s $6.5 billion round last month are the largest rounds raised by private venture-backed companies since 2019, before the COVID-19 pandemic began. 3 of the largest 10 deals so far this year were AI startups, including Anthropic’s $300 million Series B round and Adept’s $350 million Series B. In Q1 of this year, 16 companies went public in the US. That’s just 4 more than 12 in Q4 of last year. M&A and SPACs have declined by 4% and 38%, respectively, from Q4 2022 to Q1 2023.
Series A valuations are rebounding from recent lows, and the round sizes continue to get smaller, per Carta. The median pre-money valuation has risen to $40 million, but the median deal size has dropped from a high of $12 million to ~$7 million. On the other hand, Series B and C valuations have stopped falling, having leveled out at median valuations of ~$85 million and ~$170 million, respectively. However, similar to Series As, the median round size of Series D and later rounds has kept shrinking as everyone faces a cash-strapped environment.
While we are experiencing a tough funding environment, it is important to remember that great startups can still be built through resourcefulness, creativity, and strategic decision-making. Founders today must excel at stretching every dollar in a constrained funding environment and finding ways to generate revenue early on. They must also clearly communicate their vision to investors, customers, and partners. Ultimately, successful startups are built by teams who can stay focused on their goals, make informed decisions with limited resources, and execute to bring their vision to life.
Chainalysis is a blockchain analytics company that provides data and analysis to government agencies, financial institutions, and cryptocurrency businesses. To learn more, read our full memo here.
Relativity Space is an aerospace company that designs, develops, and builds 3D-printed rockets. Its goal is to automate the rocket manufacturing process. To learn more, read our full memo here.
Primer is building a new alternative education system for parents and students by enabling teachers to start and manage micro-schools. To learn more, read our full memo here.
AssemblyAI offers APIs to transcribe and understand audio data. It converts audio files and live audio streams to text. To learn more, read our full memo here.
Applied Intuition offers an end-to-end simulation platform, enabling clients to design, test, and validate their autonomous systems in a virtual environment before testing on the road. To learn more, read our full memo here.
Pop star Grimes told fans to create AI-generated music with her voice, saying she would split 50% royalties, the same as “with any artist I collab with.”
A look at LAION, a free AI training data set with 5B+ images used in Google’s Imagen and Stable Diffusion, created by a high school teacher.
BeReal said it has 20M+ DAUs and is testing allowing more than one post a day. Check out our memo on BeReal.
Slack rolled out Canvas, a collaboration tool for each channel with document creation, editing, and more.
Q&A with OpenAI CTO Mira Murati on the path from GPT-4 to AGI, safety measures, the regulation of LLMs, development of GPT-5, and the response to ChatGPT.
A look at AI Hub, a Discord community focused on AI music that released an entire album featuring original songs using AI-generated vocals from famous artists.
Spotify passed 500 million monthly active users for the first time.
Apple’s App Store can stay closed, but developers can link to outside payments, said the appeals court.
Klarna’s latest update introduces a personal shopping assistant and new creator tools.
Nvidia open-sourced NeMo Guardrails, offering a developer framework to help make generative AI more “accurate, appropriate, on topic, and secure.”
GM’s Cruise said it is now operating its small fleet of driverless robotaxis in San Francisco 24/7, expanding to daylight hours.
OpenAI now lets ChatGPT users turn off their chat histories, excluding them from its models, and plans to launch ChatGPT Business in the coming months.
Hugging Face released its version of ChatGPT. Check out our memo on Hugging Face.
Apple plans an AI-powered health coaching service and mood tracker.
Q&A with Lightspark CEO David Marcus on the current crypto winter, Lightning as a Layer 2 protocol, raising ~$175M, Libra, Nostr, Bitcoin, regulations, and more.
Instacart rolls out new ways for users to find deals on its app. Check out our memo in Instacart.
Yelp rolled out AI-powered search updates and the ability to add videos to reviews.
Microsoft made its AI-powered Designer tool available in preview.
Reddit is testing Discord-like channels for community chat. Check out our memo on Reddit.