About SuperSeed Capital
Limited
SuperSeed exists to back Europe's
best B2B SaaS founders at the earliest stages, and to help them
build great companies. In the short term, our portfolio companies
enable their customers to drive revenue growth and efficiency
savings using next-generation software and AI. In the long-term,
they have an opportunity to create category defining global
technology companies. SuperSeed focuses on the fundamentals by
helping founders build good companies with strong unit economics
and sensible distribution models.
Forward-looking
statements
This announcement contains
statements that are or may be forward-looking statements. All
statements other than statements of historical facts included in
this announcement may be forward-looking statements, including
statements that relate to the Company's future prospects,
developments and strategies. The Company does not accept any
responsibility for the accuracy or completeness of any information
reported by the press or other media, nor the fairness or
appropriateness of any forecasts, views or opinions express by the
press or other media regarding the Group. The Company makes no
representation as to the appropriateness, accuracy, completeness or
reliability of any such information or publication.
Forward-looking statements are
identified by their use of terms and phrases such as "believe",
"targets", "expects", "aim", "anticipate", "projects", "would",
"could", "envisage", "estimate", "intend", "may", "plan", "will" or
the negative of those, variations or comparable expressions,
including references to assumptions. The forward-looking statements
in this announcement are based on current expectations and are
subject to known and unknown risks and uncertainties that could
cause actual results, performance and achievements to differ
materially from any results, performance or achievements expressed
or implied by such forward-looking statements. Factors that may
cause actual results to differ materially from those expressed or
implied by such forward looking statements include, but are not
limited to, those described in the Risk Management Framework
section of the Company's most recent Annual Report. These
forward-looking statements are based on numerous assumptions
regarding the present and future business strategies of the Group
and the environment in which it is and will operate in the future.
All subsequent oral or written forward-looking statements
attributed to the Company or any persons acting on its behalf are
expressly qualified in their entirety by the cautionary statement
above. Each forward-looking statement speaks only as at the date of
this announcement. Except as required by law, regulatory
requirement, the Listing Rules and the Disclosure Guidance and
Transparency Rules, neither the Company nor any other party intends
to update or revise these forward-looking statements, whether as a
result of new information, future events or otherwise.
Investment Manager's
Review
The World of Tech and Venture
in the Final Stretch of 2024
October 2024 marked significant
shifts in the technology and venture capital landscapes. Nvidia
continued its impressive ascent, but rising US interest rates
presented fresh challenges. The U.S. presidential election added
another layer of complexity which influenced market sentiments and
inflation expectations. Venture funding remained concentrated in AI
and B2B SaaS, amid liquidity constraints and regulatory changes
affecting mergers and acquisitions. Here we are examining these
trends and their implications for VC investors as we approach
yearend.
We look at:
·
Nvidia's continued outperformance;
·
The US election and what it means for the global
economy;
·
Trends in venture capital; and
·
General trends in AI and technology.
Stock Market and Economic
Indicators
Nvidia and the Nasdaq's
Performance
Nvidia's stock surged more than 20%
during the first three weeks of October, before falling back to
leave the share price up "just" shy of a 10% gain for the month.
The overall growth was driven by extraordinary demand for its
Blackwell chip, which delivers up to 2.5 times the performance of
its predecessor, Hopper. The Blackwell GPU is fully booked 12
months in advance, reflecting a backlog due to high demand from
companies like Meta, Microsoft, and OpenAI. Nvidia's CEO Jensen
Huang notes that they are "early in a long-term AI investment
cycle." Analysts expect Nvidia's revenue to double this fiscal
year.
This robust performance contributed
significantly to pushing the Nasdaq to a record high in October.
The sustained demand for generative AI infrastructure-from models
like ChatGPT to Microsoft's AI Copilot-demonstrates the
foundational role of Nvidia's GPUs in supporting AI driven
applications.
S&P 500 Trends
S&P500 and the Nasdaq-100 had a
largely quiet October before pulling a few percentage points back
in the first few days of the month. Once again, it was mainly the
"Magnificent Seven" tech companies that were driving performance in
the indices.
Interest Rates, Inflation,
and the U.S. Presidential Election
U.S. Inflation Rate and Treasury
Yields
Inflation remained steady at 2.4%,
but yields on the 10-year Treasury rose sharply-from below 3.75% in
mid-September to over 4.25% in October. This rise reflects cautious
sentiment in bond markets and has significant implications for
sectors like venture capital and tech, where higher borrowing costs
may affect valuations and access to capital.
Impact of the 2024 U.S. Presidential
Election on Markets
As the 2024 U.S. presidential
election approached, concerns started to intensify about rising
inflation. Both major candidates proposed fiscal policies that
could fuel inflation, albeit through different mechanisms.
Importantly, both candidates signal continued high deficit
spending, albeit Trump has been discussing
working with Elon Musk to "cut $2 Trillion from the US
Budget".
Source:
CRFB
Given that both policies could be
pushing inflation, "safe-haven assets" like gold (up 30% this year)
and Bitcoin (up ca 50% this year) have been surging. And now that
Trump has won the election, let's unpack his policies further and
see what they might mean
Trump's Policies and Inflationary
Drivers
Trump's proposals focus on tax cuts,
import tariffs, and restrictive immigration measures. His proposal
for universal tariffs would raise import costs, directly
contributing to consumer inflation. Additionally, forcibly removing
millions of illegal immigrants could tighten the labour market,
potentially pushing wages higher and compounding inflation. Trump's
aggressive stance on tariffs and immigration, as well as his
potential reshaping of Federal Reserve policies, have raised
concerns of political interference in monetary policy, which could
impact medium-term inflation.
Analysts from sources like the
Peterson Institute expect that fiscal plans could elevate inflation
back to the 6% to 9% range by 2028. Our assessment is that some of
the proposed policies were campaign rhetoric rather than things
that will actually be implemented. Especially around tariffs. And
so - while we do expect the deficit to remain high and for there to
be some curtailment of immigration, we expect tariffs to be used
mainly as a instrument of trade negotiation (rather than a tool to
be applied bluntly to all imports). It's basically our expectation
that cooler heads will prevail once Trump is in office. But his
election certainly creates some uncertainty for the years ahead
with respects to inflation and global trade.
Venture Capital and B2B SaaS
Trends
Global Venture Funding in AI and
SaaS
Venture funding in applied AI and
SaaS remained strong in October 2024, focusing on companies with
solid revenue models. Notable funding rounds include:
·
OpenAI's Massive Funding Round: OpenAI raised $6.6
billion in October, nearly doubling its valuation to $157 billion;
and
·
Perplexity AI's Funding Drive: Perplexity AI, an
AI-powered search engine and chatbot start-up, initiated
discussions to raise approximately $500 million, aiming for a
valuation boost to around $8 billion.
Other significant recent rounds
include:
·
Waymo's Significant Raise: Waymo secured $5
billion from Alphabet, reinforcing its position in autonomous
driving technology.
·
Anduril Industries' Funding: The defence
technology company raised $1.5 billion in a round led by Founders
Fund.
·
Safe Superintelligence's Investment: The AI safety
start-up founded by former OpenAI co-founder Ilya Sutskever closed
a $1 billion round.
Liquidity Challenges and Investor
Strategies
The venture market faces liquidity
constraints with prolonged exit timelines due to delayed IPOs and
mergers. New merger control regulations have further complicated
M&A activities, affecting venture capital liquidity. In
response, we see both founders and investors adopting more
disciplined approaches to capital deployment for anything outside
the most well-funded AI companies. There's a heightened focus on
achieving cash flow breakeven-essentially treating every funding
round as if it were the last. This shift is expected to lead to
more capital efficient companies capable of sustaining growth amid
market volatility.
With Trump now president elect,
there is expectation that the US M&A climate will meaningfully
improve over the coming 12 months. Whereas Lina Khan (current US
Federal Trade Commissioner) has adopted a very combative approach
to big tech M&A, Trump has signalled that his new
administration will be much more supportive of corporate deal
making. This should unblock VC exits and lead to more liquidity in
the ecosystem in the coming years.
Trends in AI and Emerging
Technologies
Rapidly growing AI's
Market
Bain & Company estimates that AI
hardware and software markets will grow from $185bn in 2023 to
$780-$990 billion by 2027. The focus currently remains on
high-performance infrastructure led by hyper-scalers like Microsoft
and Alphabet. Microsoft alone invested $56bn on capex in its last
fiscal year (ending June 2024), mainly driven by the buildout of AI
infrastructure. We see this spending start to shift from hardware
to applications as the application set matures over the coming
years.
Energy Demands Driven by
AI
AI continues to drive a massive
spike in energy demands. The U.S. and Europe face significant
challenges in meeting projected energy demands over the next
decade. The current energy infrastructure is woefully insufficient,
with a limited number of new power plants under construction
compared to China's aggressive energy expansion.
Recent nuclear agreements struck by
Microsoft and Google underscore the urgency to secure reliable
energy sources. Advances in renewables, especially the photovoltaic
(PV) buildout in Texas, offer some relief but may not fully bridge
the impending energy gap.
Regulatory Environment and
Venture Capital in Europe
Continued Shortage of Venture
Capital in Europe
The European economy (here loosely
defined as the EU + the UK) is ca. $23trn, vs the US GDP of $26trn.
So - comparable in size. Even so, the US deploys three times as
much venture capital as Europe. And this is one of the reasons why
the US continues to grow faster than the European
economies.
There are a lot of things we can
improve about the European ecosystem, not least put more capital
into innovative companies. One of the challenges we face is that
European pension funds (particularly in the UK, France, and
Germany) operate under regulatory mechanisms that make it difficult
to invest in venture capital compared to their Canadian and U.S.
counterparts. Regulatory constraints and risk-averse investment
mandates limit their participation in the VC ecosystem.
The good news is that this is a
problem we can solve. The Mansion House Compact was a first step
towards channelling more capital to the innovation economy. There
is still a long way to go, but at least we are seeing some steps
being taken.
VC Strategy for Q4 2024 and
Beyond
As we move into the final quarter of
2024, we continue to emphasise a disciplined investment strategy,
focusing on well-run start-ups with viable paths to growth and
profitability. The current environment necessitates a thoughtful
deployment of capital, with both founders and investors focusing on
achieving cash flow breakeven-essentially treating every funding
round as if it were the last. This approach will lead to better,
more capital-efficient companies.
The substantial enterprise demand
for AI solutions presents significant opportunities for start-ups
in the B2B SaaS space, especially those specialising in AI
integration and infrastructure. And this is where we continue to
focus.
Fund progress in
Q3 2024
Portfolio
Revenue:
Portfolio revenue grew 10% in Q3.
This was slightly below expectations, and portfolio companies are
generally forecasting sales growth to continue at an increased pace
in Q4.
Valuations
Duel and Popp both closed new
investment rounds in Q3, on the terms outlined in the Q2 report.
Other than that, there have been no changes to valuations in
Q3.
Outlook for the remainder of
2024
While we didn't complete any new
investments in Q3, we lined up several great companies for Q4
investments (the first of which has since already closed). The
strategy continues to be to back the best founders who are using
(AI-powered) software to change how business is done. We are
currently forecasting to do 3 new investments in Q4 ahead of the
year-end.
Related Part
Transaction
Following similar transactions in
February 2023, March 2024, June 2024 and more
recently September 2024, the Company has agreed to sell a
further £300,000 of its commitment in the Fund to the Investment
Manager. This represents 8.6% of the Company's total commitment in
the Fund of £3.50m. Of the £300,000 committed to be sold, £181,912
has been drawn in cash, which has a net investment cost of £162,085
(after taking into account the pro-rata share of distributions
received from the Fund to date). The sale is being completed at net
asset value of the Fund, which results in cash proceeds to the
Company of £186,746 and represents a profit of £24,661, or 13.2%
above the original purchase price. The Company's commitment to the
Fund is now reduced from £3.50m to £3.20m and future returns from
the Fund will be reduced pro rata.
The Investment Manager is a related
party of the Company pursuant to the rules of the Aquis Stock
Exchange. The independent directors of the Company, having
exercised reasonable care, skill and diligence believe that the
sale of Fund commitment is fair and reasonable as far as the
shareholders of the Company are concerned.