Thursday, April 25, 2024

FTC bans non-compete clauses nationwide / SAFEs, convertible notes dominate pre-seed rounds / Nvidia to acquire Run:ai for $700M

Plus, AI drug discovery firm Xaira bags $1B

Inside Startups

For April 25, 2024

Here’s your daily Startups briefing:

🚫 FTC banned all non-compete clauses nationwide
📝 SAFEs and convertible notes dominated pre-seed rounds in Q1 2024 on Carta
🤝 Chip giant Nvidia is set to acquire Run:ai for $700M

Thank you.

Karan
p/karan-chafekar

The U.S. Federal Trade Commission (FTC) banned all future non-compete agreements, which traditionally restricted workers from joining rivals or launching a competing business. This move aims to foster innovation and worker mobility. The FTC believes that non-compete clauses stifle wages, suppress new ideas, and potentially hinder the creation of startups.

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The new rules have considered about 26,000 public comments since the initial proposal was published in Jan. 2023.
The U.S. Chamber of Commerce vows to challenge the regulation, warning of detrimental effects on employers, workers, and the economy.
Existing non-compete agreements, except for senior executives, will be nullified.
In the future, such clauses will be prohibited even for top leadership.
Per the FTC, the non-compete clause affects approximately one-in-five American workers, or about 30M individuals.
The FTC estimates that employees will see an average $524 increase in annual earnings due to the elimination of non-compete clauses.
The rule is set to go into effect 120 days after its publication in the Federal Register.

Pre-seed startups are increasingly opting for SAFEs (Simple Agreement for Future Equity) and convertible notes over traditional priced venture rounds for fundraising.

What the numbers say: Since 2020, startups on the Carta platform have secured $14.5B through 101,865 individual SAFEs and convertible notes rounds. Due to economic volatility, SAFEs have become the preferred investment instrument for all rounds under $3M, indicating a significant shift in fundraising strategies.

Relevance: Valuation caps for SAFE rounds remained stable in Q1, showing less volatility compared to traditional priced round valuations. 41% of checks in SAFE rounds under $1M were less than $25,000, highlighting the increasing importance of smaller investors in early-stage fundraising.

Nvidia Corp. is set to acquire AI hardware infrastructure management and optimization software startup Run:ai. The transaction is estimated to be valued at $700M, sources informed TechCrunch. Nvidia's latest move is aimed at bolstering its AI capabilities.

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Nvidia will integrate Run:ai's products into its DGX Cloud AI platform, which will give enterprise customers access to computing infrastructure and software for training AI models.
The Israeli startup had raised about $118M in total funding from investors, including Insight Partners, Tiger Global, S Capital, and TLV Partners.
This is Nvidia's second-largest acquisition following its $6.9B purchase of Mellanox in 2019.
Nvidia is also on the verge of acquiring Israeli software startup Deci, per Calcalistech.

Biotech startup Xaira Therapeutics secured $1B in fresh funding. The San Francisco-based startup is leveraging machine learning, data generation, and therapeutic product development to build a drug discovery platform.

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Xaira was operating in stealth mode for about six months.
ARCH Venture Partners and Foresite Labs jointly incubated the startup and co-led its latest funding round.
Other investors participating in the round include F-Prime, Sequoia Capital, NEA, Lux Capital, Lightspeed Venture Partners, Menlo Ventures, Two Sigma Ventures, and SV Angel.
Genentech's former chief scientific officer, Marc Tessier-Lavigne, is leading the firm as its CEO.
Tessier-Lavigne is joined by Stanford alum Hetu Kamisetty and Genentech executive Arvind Rajpal.

AI-powered coding assistant Augment emerged from stealth mode with a $252M Series B funding round at a post-money valuation of $977M. Augment is backed by former Google CEO Eric Schmidt, Index Ventures, Sutter Hill Ventures, Lightspeed Venture Partners, Innovation Endeavors, and Meritech Capital.

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Former Microsoft software developer Igor Ostrovsky founded Augment.
Ostrovsky is joined by Google's former AI research scientist Guy Gur-Ari, Pure Storage's ex-CEO Scott Dietzen, and Shopify's former VP of engineering Dion Almaer.
Dietzen leads Augment as its CEO.
The Palo Alto, Calif.-based firm plans to double its current workforce strength of 50 employees by the end of the year.

Food delivery and instant commerce startup Swiggy secured approval from shareholders for its IPO listing. The Indian startup plans to raise $1.25B, of which $450M is expected to come through the issuance of new shares. Existing investors will be able to list their shares worth $800M in the IPO.

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Swiggy reached a valuation of $10.7B when it raised fresh funding in 2022.
Investors Invesco and Baron have since marked up the valuation of Swiggy to over $12B.
Notable investors who have backed the firm include Prosus, Accel, and SoftBank.
The startup initially planned to go public in 2023 but postponed plans after market conditions soured.
Swiggy's food delivery business is profitable and clocked a GMV of $2.57B in 2023.
The startup has a 45.8% market share of the Indian food delivery market.

Quick Hits:

Conversational AI platform Parloa raised $66M in Series B funding led by Altimeter Capital. EQT Ventures, Newion, Senovo, Mosaic Ventures, and La Familia Growth participated in the round.
The China Securities Regulatory Commission approved autonomous driving startup Pony.ai's initial public listing in the U.S. The Toyota-backed startup plans to sell about 98M shares.
Ibex Investors led a $20M Series A funding round into AI-powered EV battery developer Chemix.
Brazilian fintech startup Clara is looking to raise fresh debt and equity funding. Clara was last valued at $1B when it closed a $70M Series B funding round led by Coatue Management in 2021.
British renewable energy supplier Octopus Energy plans to invest between $10M and $30M into offshore floating wind turbine startup Ocergy.