Are AI’s lofty valuations justified? Some VCs think it is

I’ve sat through several panels this week and the big topic of discussion, of course, remains AI Allie moderated a breakfast Tuesday where VCs discussed whether the lofty valuations that AI companies have attracted are justified.

Guru Chahal, a partner at Lightspeed Venture Partners, discussed how he’s been through several cycles in his career and has learned that paying for a transformative company isn’t really expensive—in hindsight. He pointed to OpenAI, which was valued at $27 billion to $29 billion in 2019. Earlier this year, OpenAI’s valuation jumped to $80 billion or more, the New York Times reported in February.

“The reality is, when there’s any of these cycles, when you look back, every round at the time seemed incredibly expensive and, in retrospect, was incredibly inexpensive,” Chahal said.

Mary D’Onofrio, a partner at Bessemer Venture Partners, agreed with Chahal. “If you invested correctly, and actually backed OpenAI in 2019, you will look back and say ‘That’s incredibly cheap,’” she said. But for every OpenAI there are many companies that won’t work out. She mentioned the number of companies in SDR replacement AI software (these are AI tools designed to automate functions performed by sales development representatives) or companies that are trying to be personal agents or address customer success from various angles. “They’re not all going to win,” D’Onofrio said.

Lila Tretikov, a partner and head of AI Strategy at NEA, said AI will be in everything just like digital is now in everything. “Every company will be an AI company in the end…It will be the fabric of everything,” she said.

There was also discussion about how these big valuations are set. Darian Shirazi, a general partner at Gradient Ventures, said he looked at the AI valuations for seed and pre-seed and discovered a surprising methodology that is used to come up with the numbers: “We make it up. There’s literally no science to how we determine pre-seed and seed valuations,” Shirazi said. 

Instead of methodology, valuations come down to whether other investors are looking at the company, if the GP has a strong conviction, and how much they want to own it, Shirazi said. Some VCs just want a company no matter what and will “overpay at some crazy price,” he said. He pointed to Wiz, which was valued at $12 billion in May when the startup raised $1 billion in a series E round co-led by Andreessen Horowitz, Lightspeed Venture Partners, and Thrive with just a few hundred million dollars in annual recurring revenue, according to reports at the time. Alphabet is said to be close to buying Wiz for a whopping $23 billion.

“Turns out that was a great idea,” Shirazi said.

See you tomorrow,

Luisa Beltran
Twitter: @luisarbeltran
Email: luisa.beltran@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.

VENTURE DEALS

- CatalYm, a Martinsried, Germany-based developer of cancer treatments designed to prevent or reverse cancer resistance to targeted treatments, raised $150 million in Series D funding. Canaan Partners and Bioqube Ventures led the round and were joined by Forbion’s Growth Opportunities Fund, Omega Funds, Gilde Healthcare, and existing investors. 

- Scorpion Therapeutics, a Boston, Mass.-based precision oncology company for cancer patients, raised $150 million in Series C funding. Frazier Life Sciences and Lightspeed Venture Partners led the round and were joined by Willet Advisors and others.

- Halo Industries, a Santa Clara, Calif.-based creator of laser technology for semiconductor manufacturing, raised $80 million in Series B funding. U.S. Innovative Technology Fund led the round and was joined by 8VC and SAIC.

- LevelTen Energy, a Seattle, Wash.-based carbon-free energy marketplace, raised $65 million in Series D funding. B Capital led the round and was joined by Google, Intercontinental Exchange, Microsoft’s Climate Innovation Fund, NGP, Prelude Ventures, and others.

- Standard Bots, a New York City-based manufacturer of collaborative robotic arms, raised $63 million in funding. General Catalyst led the round and was joined by Amazon Industrial Innovation Fund and Samsung Next. 

- Thyme Care, a Nashville, Tenn.-based company that partners with health plans, employees, and providers to connect cancer patients with more affordable care, raised $55 million in equity funding from Concord Health Partners, CVS Health Ventures, Town Hall Ventures, a16z Bio+health, AlleyCorp, and others.

- Infinitum, a Austin, Texas-based creator of a sustainable air-core motor, raised $35 million in funding from Marunouchi Innovation Partners and Rice Investment Group.

- Heimdall Power, a Houston, Texas-based power grid monitoring company, raised $25 million in Series B funding. Orlen, NRP Zero, and the Steinsvik Family Office led the round and were joined by Investinor, Eviny, Hafslund, Lyse, and Sarsia Seed. 

- Arcee AI, a Miami, Fla.-based platform for building and deploying small language models, raised $24 million in Series A funding. Emergence Capital led the round and was joined by Arcadia Capital and existing investors Long Journey Ventures, Scott Banister, Flybridge, and Centre Street Partners. 

- Exa, a San Francisco-based AI research lab developing a search engine built for AI, raised $22 million in seed and Series A funding. Lightspeed Venture Partners led the round and was joined by NVentures, NVIDIA, and Y Combinator.

- Bioniq, a London, U.K.-based developer of an AI-powered platform designed to offer personalized supplements based on blood test data, raised $15 million in Series B funding. HV Capital and Unbound led the round.

- Culture AI, a Manchester, U.K.-based human cyber risk management platform, raised $10 million in Series A funding. Mercia Ventures and Smedvig Ventures led the round and was joined by existing investors Passion Capital and Senovo.

- Mira, a Singapore-based platform designed to increase access to advanced AI, raised $9 million in seed funding. BITKRAFT Ventures and Framework Ventures led the round and were joined by Accel, Crucible, Folius Ventures, Mechanism Capital, SALT Fund, and angel investors.

- Caliza, a São Paulo, Brazil-based developer of software for ecommerce businesses designed for instant cross-border settlements, raised $8.5 million in seed funding. Initialized Capital led the round and was joined by New Form Capital, Abstract Ventures, Class 5 Global, Quona, Kraynos Capital, Digital Currency Group, and angel investors. 

- Dusk, a remote-based platform for building and playing social multiplayer games, raised $8 million in funding. byFounders and Makers Fund led the round and was joined by others.

- TALA, a London, U.K.-based activewear brand, raised £5 million ($6.5 million) in funding. Pembroke VCT led the round and was joined by existing investors Venrex and Active Partners.

- VARM, a Berlin, Germany-based provider of home insulation designed to reduce CO2 usage, raised €5.7 million ($6.1 million) in seed funding. Emerge and Pale Blue Dot led the round and was joined by noa, Foundamental, and existing angel investors.

- Predicta Biosciences, a Boston, Mass.-based developer of diagnostic and therapeutic products for blood cancers, raised $5.2 million in seed funding. The Engine Ventures led the round and was joined by Illumina Ventures, Time Boost Capital, and others. 

- Hiki, a New York City-based dating app designed for neurodivergent adults, raised $2.9 million in seed funding from MassMutual and Precursor Ventures.

- PairUp, a Chicago, Ill.-based workplace knowledge sharing platform, raised $2.8 million in funding. HearstLab and Hillsven led the round and were joined by Graham & Walker, Looking Glass Capital, Honeystone Ventures, MSIV, and Lofty Ventures. 

- Lemonado, a Stockholm, Sweden-based no-code app builder, raised $1.4 million in seed funding. node.vc led the round and was joined by others.

- Briefly Bio, a London, U.K.-based developer of an AI model that records and captures the details of scientists’ experiments, raised $1.2 million in pre-seed funding. Compound VC led the round and was joined by NP Hard, Tiny VC, and angel investors. 

PRIVATE EQUITY

- PSG Equity invested $80 million in CTERA, a Tikvah, Israel-based hybrid cloud data management platform. 

- LogRhythm, backed by Thoma Bravo, merged with Exabeam, a Foster City, Calif.-based provider of AI-powered cybersecurity operations. Financial terms were not disclosed.

EXITS

- KBR (NYSE: KBR) agreed to acquire LinQuest, a Herndon, Va.-based developer of national security space systems and technology, from Madison Dearborn Partners. Financial terms were not disclosed. 

FUNDS + FUNDS OF FUNDS

- 13books Capital, a London, U.K.-based venture capital firm, raised £121 million ($157 million) for a new fund focused on investments in financial technology companies.

PEOPLE

- 3 Rivers Capital, a Pittsburgh, Pa.-based private equity firm, promoted Michael Zhong to partner.