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Why AI startups are seeking investment banks

Why AI startups are seeking investment banks

AI startups seek outside help for fundraising, tech layoffs continue in 2024, and more…

Loryn Chen & Nicole Chong
August 16, 2024

Good morning,

Today, we’ll look at why AI startups are seeking fundraising help from investment banks. Plus the top tech news you need to know from this week.

Let’s go 👇

This week’s insight

Context

Investment bankers are finding their way into AI deals as more AI founders enlist banks to help with fundraising.

One recent example is Lambda Labs, the AI startup that rents our servers of Nvidia chips. It’s working with JPMorgan Chase on its latest fundraising round, which is targeting around $800M.

Other examples

OpenAI competitor Cohere AI (based in Canada), also worked with JPMorgan, as well as Goldman Sachs to raise a $500M Series D round that valued the company at $5.5B earlier this year.

Groq, the $2.8B chipmaker, hired Morgan Stanley to raise hundreds of millions earlier this year.

CoreWeave, the $19B GPU cloud provider, also worked with Morgan Stanley on a share sale last year.

Why are AI startups hiring banks?

Many of these AI startups are run by researchers, not business folks or master fundraisers. They’d rather work on building their product instead of making pitch decks and selling to investors.

The AI market is also super competitive right now. These researchers are competing with veterans like Sam Altman and Elon Musk. It’s a major challenge, yet, constant fundraising is required because of the high cost of AI computing power.

How do banks help?

Banks help by connecting to firms newer to private tech investing, such as sovereign wealth funds and hedge funds.

Because of the AI craze right now, the size of these investments and valuations are compelling to bankers, who are typically paid a small percentage of the total raise.

Working with AI companies earlier in their development also gives bankers the ability to establish a relationship ahead of a bigger IPO or sale.

Bottomline

For some AI founders, banks are worth the added cost so that they can remain focused on building their products.

Other news

Cisco will lay off 7% of its workforce (about 5000 employees) amid declining sales. It’ll spend roughly $1B on severance payments.
Meta shuts down its social media research tool CrowdTangle which researchers and journalists used to track engagement with trending posts.
X expects to bring in $2B in ad revenue this year. It’s a drop from 2023 when it brought in $2.5B and an even steeper decline from 2021 when it brought in $4.5B.
OpenAI releases an improved set of coding challenges that AI companies can use to test their models’ programming capabilities.
DoorDash adds Max streaming to its DashPass subscription.

Deal flow

Profound, a startup co-founded by an ex-Uber employee, emerges out of stealth and raises a $3.5M seed round to help brands with AI search optimization.
Jeff Bezos’ younger brother Mark Bezos’ private equity firm HighPost Capital, debuts a $100M VC fund focused on consumer startups.
EliseAI, an AI-powered property management tool, raises a $75M Series D round at a $1B valuation, led by Sapphire Ventures.
Spline, the 3D design platform, raises a $10M Series A round and will focus on bringing AI to 3D designers while simplifying the creative process.
Radical Ventures, an AI-focused VC firm, raises nearly $800M for its AI-focused fund. It was an early backer of Cohere AI (valued at $5.5B).
Kiteworks, a security startup that builds tools to secure email communications and file sharing, raises a $456M round at a $1B valuation.
Sahara AI, a decentralized blockchain platform for open and equitable AI, raises a $43M round to disrupt centralized AI.
Capitalize, a platform for consumers and institutions to find and transfer retirement assets, raises a $19M Series B round.
Sling Money, a stablecoin-centric money transfer app, raises a $15M Series A round.
Levels, a metabolic health app, raises a $10M Series A extension round from a16z, Long Journey, and more.
PayZen, a healthcare patient financing platform, raises a $32M Series B equity round along with a $200M debt funding round.
Guidewheel, an AI-powered FactoryOps platform, raises a $31M Series B round.
Setpoint, an infrastructure provider for the credit industry, raises a $31M Series B round from Wells Fargo, Citi, a16z, and others.
Linktree, the link-in-bio platform, acquires the social media scheduling tool Plann for an undisclosed amount.
Lockheed Martin, the aerospace company, is set to acquire satellite maker Terran Orbital in a $450M deal.

Was this forwarded to you?

That’s it for this week. I hope it was insightful. As always, let me know what you think and if you have any questions. Cheers!

🌜 Loryn and Nicole from Dark Mode Digest