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 investing,
⅓ into 2024
Four months ago, at the start of 2024, we said
we thought that US equities looked pretty fully valued. We also
said that we thought the S&P 500 might have further to rise on
the back of positive market sentiment.
Two months ago, markets were even
higher, and we wrote how investors were partying like it was 1999.
At the time I asked whether this was a revival of the dotcom
bubble.
NVIDIA peaked on 25 March, and the
S&P 500 3 days later. Since then, the S&P 500 is down 5%
and NVIDIA is down 20%. Volatility is back.
Inflation isn't slain
yet
Up until late March, there was still
hope that inflation was more or less under control, and that the
Fed would start cutting rates. That hope has been put on pause for
now. US inflation has come down significantly from 2022, but it is
still stubbornly high.
Cue the Fed and Powell, who have
been rethinking interest rate cuts in the face of stubborn
inflation numbers. Here is Jerome Powell on April 16th: "Given the
strength of the labour market and progress on inflation so far, it
is appropriate to allow restrictive policy further time to work and
let the data and the evolving outlook guide us."
So the Fed keeps looking at their
favourite data points, and they don't much like what they see.
However, their pessimism may be excessive. The Truflation team has
US inflation at 2.09% as of the latest reading, vs the Fed's
reported 3.5% rate. And as the FT Alphaville Team points out, fears
about inflation stickiness might be overdone.
So there are clearly two sides to
the story. Even so, it's likely that we will get fewer cuts than
hoped for in 2024. And thus markets are taking a breather and going
soft.
Have the Magnificent Seven
run out of Steam?
Since US Markets bottomed out in
October 2022, the runup to current levels (+40%) have been powered
by the Magnificent Seven (Apple, Google, Facebook, Amazon, Nvidia,
Tesla, Microsoft). Investors have (in many ways correctly) treated
the Seven as an unbeatable block of growth and profit. All driven
by exceptionally dominant positions in their respective areas of
technology.
But start scratching under the
surface, and we can see that the party might be coming to an
end.
While the Mag 7 are still up way
above their position as of a year ago, the last month has been
challenging. And there might be further headwinds.
Look under the covers:
· Apple
is struggling to explain where future growth will
come from. Demand for iPhones has gone into a tailspin in China,
and the pipeline of new blockbuster products looks bare.
· Tesla
is still growing modestly, but the company has
missed Earnings Per Share for the past two quarters. And there are
worries that both revenue and profit could be put under pressure
from Chinese manufacturers:
· NVIDIA
has had an incredible run over the past 18 months
on the back of the LLM/AI boom, but there are major questions as to
whether the company can keep up the current combination of growth
and profit margins (which would be needed to justify the
valuation).
· Facebook/Meta
has also had a formidable run since the start of
2023. But a lot of the performance was driven by cost optimisation
as the company got lean and trimmed investments in the Metaverse,
leading to better operating profits. The company is theoretically
well-placed to benefit from AI, given its massive data trove.
However, as Meta felt it was behind Google and Open AI in the LLM
race, it took an early decision to open-source its own LLM (Meta
Llama). This potentially caps the upside of any benefit Meta can
derive in the AI space.
· Google
was widely seen as the indisputable leader in AI
prior to OpenAI's launch of ChatGPT. For more than a decade, Google
(and Google Deepmind) produced world-leading research in the AI
field. However, internal cultural issues have slowed down the pace
of innovation at Google, exemplified by the botched launch of
Google Gemini earlier this year. Gemini is in many ways an
awe-inspiring product, and Google certainly hasn't been knocked out
yet. But with its core business model (search and advertising)
under assault from LLMs, many are questioning future growth
prospects.
Amazon and Microsoft - the two
remainders - have their own challenges. But even if we accept that
they are formidable companies, it's hard to see those two pick up
the slack from the other five to continue to drive the stock market
all on their own.
So where are the growth
opportunities?
As early-stage tech investors, we
are unapologetically optimistic here at SuperSeed. That said, there
has been some grim reading in the global news columns so far this
year. It does not look like the war in Ukraine is drawing to a
positive conclusion in the near term, and Israel's conflict with
Iran's proxies Hamas and Hizbollah have threatened to engulf the
wider region. On a macro scale, this is all "bad for
business".
At the same time, there were hopes
of a rapprochement between China and the US following November's
largely successful summit between Xi Jinping and Joe Biden. But the
underlying conflicts have not gone away. The US is unhappy with
China's support for Russia, and China is unhappy with the US's
support for Taiwan. And there are a host of other issues underneath
these.
So rather than collecting a "peace
dividend", everyone is now busy restocking their weapons arsenals.
The UK government has announced a targeted increase in defence
spending from 2.3% to 2.5% of GDP.
While all of this might be bad for
peace (at least in the short term), it's good news for arms
manufacturers. Rolls-Royce, for instance, have quadrupled in share
price in less than 2 years.
Whatever your penchant for defence
investments, weapons manufacturers and cybersecurity companies are
likely to benefit in the years ahead.
What's happening in venture
capital?
While 2023 was largely a year of
going sideways, the VC industry has started to rebound as of the
past few months.
US fund administration platform
Carta reported that VC fund capital calls finally are on the rise
again. While it is still too early to tell whether this is a bona
fide new "cycle", the data is certainly showing green
shoots.
Anecdotally, we are feeling
spring-time in terms of deal-flow and velocity as well. But where
is the activity?
In many ways, AI is still the only
game in town. AI has driven expectations (and market cap) for
Microsoft, Google and NVIDIA, and AI has also continued to drive
investments in early-stage tech companies.
While US seed valuations ticked up
in Q1, Series A valuations were largely flat on Q4 (but still well
up on the nadir from Q4 2022 to Q3 2023).
Where are the
opportunities?
In March, we looked at areas for
early-stage investment opportunities. This month we are going to
dive more into opportunities in vertical applications, including
some of the AI tooling that enables these opportunities. You can
read more here.
Fund progress in
Q1 2024
New
Investments:
Woodsense (closed early
Q2)
The global construction industry
wastes billions annually due to moisture damage, with approximately
half attributed to water ingress alone. This not only impacts the
bottom line of construction projects, but also undermines the
structural integrity and longevity of buildings. Woodsense's SaaS
platform monitors and detects moisture ingress in buildings by
leveraging IoT sensors and AI-driven anomaly detection algorithms.
Woodsense's platform eliminates risk, reduces cost, and provides
quality assurance which is valuable for various stakeholders
participating in the industry (architects, contractors, financiers,
and insurers). Although still a young company, the business has
strong product/market fit, with more than 100 customers already
using the platform to manage construction risk.
Messium - Using AI to
optimise fertiliser use in agriculture
Messium uses hyperspectral satellite
imagery to monitor the nitrogen concentration of crops, and applies
machine learning to infer the appropriate application of
fertiliser. The solution optimises fertiliser application to
increase yield and reduce waste, significantly growing farmers'
margins. The average margin for a farm is 11.3%. Top-quartile farms
achieve 75% higher margins than an average-performing farm. As
agricultural subsidies continue to wane, and as crop prices
continue to fall, farmers must focus on reducing costs. Fertilisers
exist to maximise crop yield from arable land, but routinely,
farmers over- or under-fertilise. Fertiliser prices are at historic
highs, and are expected to continue to grow. Nitrogen concentration
monitoring solutions that exist today generate unreliable,
inaccurate information about nitrogen density in soil, leading to
misinformed purchasing and application of fertiliser, or they are
prohibitively time-consuming and expensive. While the
over-purchasing of fertiliser further erodes farmers' slim margins,
significant environmental implications also result from its
overapplication.
Portfolio
Revenue:
Portfolio revenue hovered around the
50% annualised growth mark in Q1. While buying cycles generally are
better than 12 months ago, several companies still experienced
delays in bringing in forecasted deals. The Q2 forecast is
outlooking growth at a similar rate to Q1.
Valuations
Duel and Uhura have both had offers
of new investments rounds, which has positively impacted valuations
for the companies. Other than that, there have been no changes to
valuations in Q1.
Outlook for the remainder of
2024
With strong deal-flow and positive
market sentiment, our strategy for the year remains unchanged: back
the best founders that use (AI-powered) software to change how
business is done. We look to complete another 4-6 investments on
this strategy for the remainder of the year.