Nvidia’s Corporate VC Triumph, Inflation and Economic Positivity Persist, Japan Slides Into Recession, Labor Unions Assert Influence, MLB Commissioner Announces Retirement
California, United States, February 21, 2024- For years, major corporations have been establishing venture capital arms as extensions of their businesses. These arms serve a dual purpose: providing capital to startups and offering invaluable mentorship opportunities. Startups that partner with these corporate venture arms gain access to not only financial resources but also to the wealth of expertise and guidance that comes from being affiliated with a larger entity. They receive education on various aspects of business operations and are exposed to advanced strategies in manufacturing, marketing, and sales.
In the case of Nvidia’s relatively new venture capital arm, Nventures, this partnership translates into a significant enhancement of technological capabilities for companies within its portfolio. According to Jacob Berlin, CEO of Terray Therapeutics, an AI biotech firm in the Ventures portfolio, the collaboration with Nvidia has been instrumental in driving remarkable performance. Berlin emphasized to Forbes the indispensable role that Nvidia has played in their success: “We just saw much, much better performance. And we couldn’t have gotten there without the collaboration with Nvidia and their support.” This testimony underscores the pivotal role that corporate venture arms play in propelling the growth and success of startups in the tech industry.
Since its launch in early 2022, just before the onset of the AI frenzy, Nventures has steadily built a portfolio of 15 companies, as indicated on its website. While the specifics of the partnerships between Nventures and its portfolio companies remain undisclosed, the access provided to the engineers and developers behind Nvidia’s leading graphics processing units, crucial for AI development, has proven immensely beneficial. While participation in the program doesn’t guarantee priority access to Nvidia’s GPUs, several companies within the portfolio have shared experiences of personal interactions with Nvidia’s CEO, Jensen Huang.
The year 2023 proved to be challenging for VC investments across the board. According to data from CB Insights, total venture funding for companies plummeted by 42% compared to 2022, hitting a six-year low of $248.4 billion. Corporate VC investments followed suit, experiencing a 27% decline in both value and the number of deals, as reported by Global Venturing. Despite these downturns, the support and resources provided by corporate venture arms like Nventures remain crucial lifelines for startups navigating turbulent economic waters.
Nevertheless, data has unmistakably demonstrated the substantial advantages enjoyed by companies with corporate VC investors. According to insights from PitchBook analyzed by Global Venturing, companies not backed by corporate VCs are twice as likely to face bankruptcy. Moreover, corporate VC backing often correlates with a higher acquisition multiple for a company. In an increasingly tightening economy, corporate VCs are actively seeking investment partners to cultivate valuable relationships, foster future collaborations, drive business development, and spur innovations. Nventures and its portfolio appear to be strategically leveraging all these facets to their advantage.
The financial constraints faced by venture capital firms exemplify the broader financial pressures confronting all companies in recent times. The compounding effects of the pandemic, inflationary pressures, supply chain disruptions, and geopolitical instability have injected unprecedented levels of uncertainty into the business landscape. A recent study conducted by the Boston Consulting Group indicates that a majority of CEOs and CFOs now feel more prepared to navigate the financial challenges anticipated in 2024. To delve deeper into the implications of this study and the outlook for the coming year, I spoke with Paul Goydan, managing partner and global leader of BCG’s Accelerated Cost Advantage program. An excerpt of our conversation is featured later in this newsletter, shedding light on the insights and projections for the months ahead.
ECONOMIC INDICATORS
While the year 2024 began on a promising note for the markets, the recent week marked a significant stumble. The latest report from the Bureau of Labor Statistics on the January consumer price index revealed inflationary pressures exceeding the expectations of many analysts. This unexpected strength in inflation suggests that the Federal Reserve might delay any plans to cut interest rates.
The report unveiled a headline inflation rate of 3.1% in January, surpassing economists’ consensus estimates of 2.9%. The bulk of this inflationary pressure stemmed from sectors such as food, shelter, transportation, and medical care. Interestingly, energy costs, as a whole, witnessed a decline of 0.9% compared to December, with gasoline costs specifically dropping by 3.3% within a month. Meanwhile, core inflation, which excludes food and energy prices, remained steady at 3.9% in January, unchanged from December. Predictably, these developments triggered a market reaction, with the Dow Jones Industrial Average experiencing its most significant downturn in 11 months last Tuesday.
The markets showed signs of recovery throughout the week as optimism regarding the economic outlook once again took center stage. According to the University of Michigan’s widely followed survey released on Friday, consumer sentiment reached its highest level since July 2021.
However, it remains uncertain whether this optimism is warranted. In addition to inflationary pressures exceeding expectations, gas prices surged to a three-month peak last week. Despite being around 4% lower than the prices seen a year ago, according to AAA statistics, motorists are still facing higher costs at the pump. Adding to the challenges, Charles van der Steene, the regional president of Maersk North America, highlighted on CNBC last week that the ongoing turmoil in the Red Sea shows no signs of abating anytime soon. He anticipated that Maersk would continue to navigate the longer route, resulting in escalated shipping expenses and prolonged delivery delays, at least through the second quarter and potentially into the third.
FROM THE HEADLINES
While projections of an impending recession in the U.S. remain scarce, Japan was unexpectedly plunged into one last week. Preliminary data from the Japanese Cabinet Office revealed that the country’s GDP contracted for the second consecutive quarter, declining by 0.4% in Q4, following a 3.3% downturn in Q3. This stark contraction defied analysts’ expectations, who had anticipated a 1.1% growth for the quarter, as reported by Bloomberg. As an immediate consequence, Japan has relinquished its position as the world’s third-largest economy to Germany. These developments are likely to have far-reaching implications for global business endeavors.
HUMAN CAPITAL
The active momentum for labor unions persisted last week, with notable developments across various sectors. On Valentine’s Day, a traditionally busy time for travel, members of the Justice for App Workers coalition, representing approximately 130,000 Uber and Lyft drivers nationwide, staged a protest by refusing rides to and from airports in 10 cities, including Miami, Chicago, and Austin. Meanwhile, at Disneyland, characters and parade cast members announced their plans to unionize on Tuesday. Shawn Fain, the United Auto Workers president instrumental in last year’s successful 46-day strike at Ford, Chrysler owner Stellantis, and General Motors, lent support to the campaign to organize Delta flight attendants. Building on the momentum of last year’s successful UAW, SAG-AFTRA, and Writers Guild of America strikes, labor unions have seen a resurgence in their influence and effectiveness.
Labor union members are actively advocating for their interests, aiming to make their voices heard by corporate executives, investors, and customers alike. The Strategic Organizing Center, comprising several North American labor groups, addressed a letter to the Securities and Exchange Commission on Friday, alleging that Starbucks failed to disclose $240 million in costs and liabilities related to “anti-union activity” and unpaid wages to shareholders. At present, workers at over 385 Starbucks locations have unionized, with 725 open or settled unfair labor practice charges against Starbucks and its affiliated companies filed with the National Labor Relations Board.
COMINGS + GOINGS
Major League Baseball Commissioner Rob Manfred made headlines last week with his announcement of retirement upon the conclusion of his term before the 2029 season. Manfred assumed the role in 2015, succeeding the retiring commissioner Bud Selig, after being selected by team owners. Initially signed to a three-year contract, his tenure was extended until the 2024 season in 2018, followed by a five-year contract extension last July. Throughout his tenure, Manfred navigated significant challenges, including the Houston Astros’ sign-stealing scandal, the disruptions caused by the pandemic, and the implementation of new rules aimed at shortening games.
According to megaways-casino.online, one of the MLB’s primary concerns under Manfred’s leadership has been profitability. Traditionally, a substantial portion of baseball revenue stemmed from local television broadcast rights. However, with the evolving landscape favoring streaming platforms, traditional broadcasters have encountered substantial hurdles. The resolution of this issue may be imminent as Manfred prepares to depart from his role. Nonetheless, the selection of his successor will undoubtedly shape the future trajectory of America’s beloved pastime, reflecting the direction in which the sport is poised to evolve.
TOMORROW’S TRENDS
BCG’s Paul Goydan Discusses C-Suite Financial Perspectives for 2024
Last month, Boston Consulting Group released a report based on a survey of over 600 global executives, delving into their perspectives on costs, market outlook, and growth strategies for the year ahead. The findings provided valuable insights, indicating that executives have developed clear strategies to navigate the uncertainties of the current landscape. I had the opportunity to speak with Paul Goydan, managing partner and global leader of BCG’s Accelerated Cost Advantage program, to discuss the report’s implications and how businesses are translating these insights into action. The following transcript has been edited for brevity, clarity, and coherence.
Q: It appears that CEOs are increasingly optimistic about the stability of their businesses, market conditions, and their ability to withstand economic turbulence this year. What factors do you believe are contributing to this heightened sense of optimism?
Goydan: I would attribute this shift to a reduction in pessimism among corporate leaders. They acknowledge the potential for disruptions this year, including geopolitical tensions and electoral events. However, they have demonstrated resilience and adaptability in the face of previous challenges, such as supply chain disruptions and the pandemic. The experiences of navigating through these adversities have equipped CEOs with a greater sense of confidence in their ability to adapt and thrive amidst uncertainty. While uncertainties persist regarding the long-term impacts of factors like AI and climate change, CEOs are increasingly focused on building flexibility into their strategies to effectively address evolving challenges.
The report found that 65% of company leaders aim to cut costs in supply chain and manufacturing operations. What strategies do they plan to employ, and why?
They’re experiencing margin compression due to recent years’ challenges, unable to rely on price adjustments. Analysts note an increase in own-store brands and generics, leading to margin pressures. Geopolitical factors like energy crises are reshaping supply chain and manufacturing footprints. Companies are reevaluating inventory strategies post-pandemic. Additionally, there’s a focus on overhead reduction, talent shift to AI and digital innovation, inventory management amid higher interest rates, vendor partnerships in procurement, marketing ROI assessment, and rising cloud costs from digital investment.
In the report, 83% of CEOs reported hitting a one-time cost target, but many struggled to maintain those savings. One major issue is fatigue from continuous change initiatives. Often, efforts falter in the later stages where cultural shifts and infrastructure changes are needed for lasting impact. Additionally, companies may overlook ongoing optimization opportunities, allowing inefficiencies to accumulate over time. Without a proactive approach to cost management, such inefficiencies become entrenched, eroding long-term savings.
Regarding current strategies, there’s optimism. There’s a noticeable trend toward CFOs with operational expertise, enabling a more strategic approach to cost management. This shift is seen as promising for sustaining cost savings, with CFOs playing a more active role in driving efficiency and lean practices across the organization.
When it comes to company pressures, acquiring top talent ranks as the primary concern. However, despite this focus, many companies are still conducting layoffs. The landscape underscores the critical importance of technology-savvy talent across all business functions. Proficiency in technology has become indispensable, with employees needing to engage with a myriad of tools and prototypes. This shift has brought previously disparate roles closer to technology, with functions like marketing now directly interfacing with technology for tasks like website design and testing. As technology continues to integrate into workflows, the demand for skilled tech talent remains high, making it a scarce resource in today’s competitive market.
FACTS + COMMENTS
Shareholders of Digital World Acquisition, the publicly traded blank check company set to merge with the parent company of Donald Trump’s Truth Social network, will vote on the combination on March 22.
Digital World shares have surged by an astonishing 178.2% in 2024 so far.
Following a successful merger, Donald Trump is projected to own between 58% to 69% of the shares.
Trump Media CEO Devin Nunes outlined the vision for Truth Social, emphasizing its aim to “build a free speech highway outside the stifling stranglehold of Big Tech.
CEOs have exhibited a decreased level of pessimism regarding economic conditions for 2024, despite ongoing challenges and uncertainties. Corporate venture arms like Nvidia’s Nventures have continued to play a pivotal role in supporting startups, particularly in the tech industry, by providing not only financial resources but also invaluable expertise and guidance. While the broader economic landscape remains turbulent, there is optimism among executives, with a focus on cost-cutting measures and strategic shifts driven by CFOs with operational expertise. However, challenges persist, particularly in maintaining cost savings and acquiring top talent, amidst ongoing layoffs in many companies. The convergence of technology with various business functions underscores the critical importance of technology-savvy talent in today’s competitive market. Additionally, the impending merger between Digital World Acquisition and Truth Social, backed by Donald Trump, highlights the evolving dynamics in the media landscape and the continued emphasis on fostering alternative platforms for free expression.
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