U.S. Startup Funding Is about to Rise Post-election

Hey SaaS Sentinel reader. Welcome back. Funding data trends show that investments in startups is about to spike post-election, biotech and healthcare startups are outpacing AI for funding, and notable VCs are now investing in competing companies. Here’s what else is happening in SaaS this week.

• U.S. startup funding is about to rebound post-election according to data from Crunchbase

• Biotech and healthcare startups have seen a surge in megadeals of $100 million or more

• In a break from tradition, VCs are now investing in multiple competing AI startups

Does U.S. startup funding rise in post-election years?

Uncertainty runs high in any election year. But there are signs that U.S. startup funding tends to bounce back in post-election periods regardless of who wins.

Analyzing funding data over the past six presidential election cycles reveals an interesting trend. Total venture dollars invested across all stages rose year-over-year in four out of six post-election years tracked. The two exceptions followed the 2001 dot-com implosion and 2009 financial crisis—headwinds no politician could quickly overcome.

But besides these extraordinary crises, data shows that post-election rebound is more the norm. Funding leaped an astounding 106% to a record $345 billion in 2021 after Joe Biden's 2020 victory. A 26% annual gain also followed Donald Trump's 2016 win and a 20% rise after Barack Obama's 2012 triumph.

There isn't a perfect correlation by any means. Market conditions and economic fundamentals undoubtedly dictate investment patterns more than the Oval Office occupant.

Still, post-election eras can shift cultural moods and reshape policy agendas to favor emerging technologies, sparking bursts of fresh investor enthusiasm. The statistics reveal this effect tends to overpower any partisan concerns over who controls Washington.

And if the pattern holds, VC tallies could rise again in 2025 no matter who comes out ahead next fall. An IPO rebound may further bolster late-stage funding next year, unleashing another post-election funding wave regardless of which party winds up celebrating on election night.

So be skeptical of those claiming presidential politics make-or-break startup investing outlooks. Yes, policy matters. But the numbers show that VC funding has survived many bitter partisan battles. And prospects for growth look solid going into the next post-election cycle.

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VC megadeals are booming—and AI is surprisingly not the top category

The venture capital megadeal is back in a big way. Nearly 240 funding rounds of $100 million or more have been raised by U.S. startups so far in 2024 according to new data from Crunchbase. That total has already blown past last year's tally, with over two months still remaining for additional massive rounds to close.

Surprisingly, the top sector landing these megadeals isn't AI, but rather biotech and healthcare. This category snagged a whopping 87 deals so far this year. Hot areas fueling this funding frenzy include companies working on small molecule drugs, kidney medications, and those utilizing AI to accelerate drug discovery.

One of the largest rounds went to Xaira Therapeutics, an AI-powered drug creation startup that launched in April with a staggering $1 billion in funding led by top biotech VCs. Other health tech players like Terray Therapeutics and Judo Bio also closed 9-figure rounds. It seems each week brings another announcement of a shockingly large biotech megadeal.

AI startups aren't totally left out though. They rank second with 26 megadeals bagged so far in 2024. And many of the biotech monsters have both deep tech and life science DNA. But the surge in gargantuan rounds for more traditional biotech is eye-opening and speaks to the vast potential investors see in transforming this sector.

The other red-hot space landing more triple-digit rounds is cybersecurity. Highflyers like Kiteworks, Cyera, and Wiz have all scored fundraises upward of $300 million this year. With data security threats mounting, VCs are opening their wallets wide to back the latest solutions.

While brutal tech market conditions have battered the valuations of many 2023 darling startups, it seems there's still no shortage of capital available for the most promising companies—at least those working to solve big problems in booming industries. The rise of biotech suggests a sector shift in terms of where the highest potential is perceived.

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VCs are 'hedging their bets,' backing competing LLMs like Anthropic and OpenAI, breaking a long-standing venture taboo

Venture capitalists have long held an unwritten rule—don't fund direct competitors. But that precedent is shattering as investors shower billions on competing artificial intelligence startups.

The emerging rivalry drawing the most VC interest pits research lab turned startup Anthropic against OpenAI. Both are racing to develop and deploy the most powerful large language models (LLMs)—AI systems trained on vast data that can generate written prose, computer code, and more.

Yet despite the head-to-head competition, investors like a16z, Sequoia, and Ark Invest are backing both Anthropic and OpenAI. Several firms also have simultaneous stakes in OpenAI and other players like xAI and SSI.

Some VCs decry this as flawed, unethical, and counter to the core VC mission of fully committing to one horse. Others argue it's reasonable given the uncertainty over which companies will dominate the red-hot and fast-moving AI field.

The radical shift speaks to the massive checks that are required to fund today's most ambitious AI startups. With multiple companies raising at billion-dollar-plus valuations, investing in them almost parallels buying public tech stocks. And just like public equity investors, VCs seem to have concluded that keeping exposure to multiple cutting-edge AI players is prudent in such an unpredictable environment.

As AI progress accelerates, the list of startups attracting this controversial multi-betting approach will likely grow. And competitive worries may fall by the wayside if VCs believe that backing several rivals will improve their odds of turning a profit through owning a piece of future game-changing technologies.

The old gentlemen's agreement of venture capital —picking one horse and sticking with it—has met the frontier of AI investing. And faced with such high stakes and uncertainty over who will dominate, the conviction to stay loyal to just one AI startup is melting away.

Read more.

Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know—did you learn something from today’s newsletter?

Until next time!