SuperSeed Capital Ld - Unaudited Q4 2024 Results

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

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Investment Manager's Review

The start of 2025 has brought significant shifts in artificial intelligence economics and market dynamics. DeepSeek demonstrated that top-tier AI performance could be achieved at just 5% of traditional inference costs, triggering a +$1 trillion market value adjustment across AI-related stocks, including $600bn for Nvidia alone. For SuperSeed's investment strategy, this efficiency breakthrough actually strengthens our thesis: AI implementation becomes more economically viable for enterprises, accelerating adoption of the very solutions our portfolio companies provide. Meanwhile, tech giants doubled down on infrastructure investments, with Microsoft, Google, Meta, and Amazon projecting combined capital expenditures exceeding $315 billion for 2025.

This quarter we examine:

·     Tech infrastructure investments and market dynamics;

·     Interest rates and economic indicators;

·     Venture funding trends and valuations;

·     AI infrastructure and policy developments; and

·     Portfolio performance and new investments.

Stock Market and Economic Indicators

AI Infrastructure Race Accelerates

The four largest cloud providers are significantly expanding their AI investments. Microsoft plans $80 billion in AI data-centre spending for its fiscal year ending June 2025 (although Microsoft CEO Satya Nadella has recently questioned whether he will come good on the full amount). Google parent Alphabet projects $75 billion in capital expenditures, while Meta targets $60-65 billion. Amazon indicates total capital expenditures will exceed $100 billion, primarily directed toward AI infrastructure.

These investment levels reflect confidence that AI adoption will drive substantial returns, even as DeepSeek's efficiency breakthrough forces a recalibration of hardware requirements. The market initially reacted sharply - Nvidia's stock declined 16% on January 27th, leading to a broader tech sell-off. However, the fundamental thesis that AI will transform enterprise computing remains intact.

Market Concentration Reaches Critical Levels

The "Magnificent Seven" tech leaders now represent 40% of S&P 500 market capitalisation, collectively worth $4.9 trillion more than the entire European stock market. This concentration creates both opportunities and risks - while it reflects the winning companies' operational leverage and growth, it also suggests potential vulnerability to any shift in AI sentiment or competitive dynamics.

The Fund's Position

Unlike funds heavily exposed to public market tech concentrations, the Fund's early-stage focus allows us to identify emerging winners outside the dominant platforms, potentially offering greater upside as the AI ecosystem diversifies beyond the current leaders.

Interest Rates and Economic Outlook

The Federal Reserve implemented its first rate cut in December 2024, bringing the federal funds rate to 4.25-4.50%. The European Central Bank and Bank of England followed, cutting rates to 2.75% and 4.50% respectively.

This higher-for-longer rate environment particularly impacts growth companies by increasing their cost of capital and pressuring valuations. For venture-backed start-ups, this translates to greater emphasis on capital efficiency and near-term profitability metrics rather than pure growth.

This environment plays directly to the Fund's investment thesis, as we've consistently favoured capital-efficient business models with clear paths to profitability over growth-at-all-costs approaches.

Venture Capital and AI Developments

Record AI Funding Concentration

Roughly one-third of global venture funding in Q4 2024 went to AI-related companies. Notable rounds included:

·     OpenAI: $6.6 billion at $157 billion valuation;

·     xAI: $6 billion at $50 billion valuation; and

·     Waymo: $5.6 billion at $45 billion valuation.

It's not stopping there, with OpenAI now in discussions for $40 billion at $300 billion valuation, and Anthropic: Pursuing $3.5 billion at +$60 billion valuation.

The magnitude of these rounds reflects both the capital-intensive nature of frontier AI development and investor conviction in the market opportunity. However, this concentration of capital in mega-rounds has coincided with more selective investing at earlier stages. This dynamic creates a strategic advantage for the Fund, as our focus on capital-efficient enterprise AI solutions requires significantly less funding than frontier model development, allowing us to generate substantial returns without competing for these mega-rounds.

Infrastructure and Policy Evolution

President Trump's announcement of Project Stargate - a $500 billion AI infrastructure initiative - signals U.S. determination to maintain leadership in AI compute.

For the Fund's portfolio companies, this massive infrastructure investment presents significant opportunities, as our enterprise solutions will be able to leverage this enhanced compute capacity without bearing the capital costs directly.

While we don't have anything of quite that magnitude in the UK, the government here unveiled an ambitious AI Action Plan led by Matt Clifford, emphasising compute access, talent attraction, and regulatory innovation. While the plan provides a strong foundation, key gaps remain around venture capital availability for scale-ups and immigration policy for technical talent.

Fund progress in Q4 2024

Revenue Growth

Fund Portfolio revenue grew 14% in Q4 2024, in line with expectations. This growth trajectory is forecast to continue through Q1 2025, reflecting the resilient demand for enterprise software solutions even in a challenging macro environment.

Valuations and Returns

Portfolio value increased 10% in Q4 (on a constant basis), driven by successful up-rounds. Notable developments include:

·    Hirundo: Closed $6 million Seed round at $18 million pre-money valuation, up from $6.6 million post-money in Q4 2023; and

·    Duel: Agreed terms on Series A, expected to close in Q1 2025 at a very healthy mark-up (final details to be disclosed in the next report).

New Investment: Cerve

The Fund led a £3.5 million Seed round in Cerve, which is tackling the $17.5 trillion food and beverage industry's data integration challenge. Only 5% of the industry currently has proper system integration, creating massive inefficiencies in a market comprising over 100 million organisations.

Cerve's Application Programming Interface (API) solution enables seamless communication between Enterprise Resource Planning (ERP) systems across the food and beverage ecosystem. This elegant technical approach, combined with founder Dan Mazig's deep expertise in enterprise software development, positions the company to drive significant value by reducing waste and improving supply chain efficiency.

Cerve exemplifies the Fund's investment thesis: they're applying AI to solve a massive enterprise inefficiency with a capital-efficient approach.

Investment Outlook

We expect to make 4-7 new investments in 2025 as we complete the deployment of SuperSeed II and prepare for SuperSeed III. Our focus remains on identifying capital-efficient companies leveraging AI to solve substantial enterprise challenges.

We're particularly excited about opportunities in:

·     Vertical AI solutions for regulated industries;

·     Supply chain optimization leveraging multimodal AI; and

·     Enterprise security solutions addressing AI-specific vulnerabilities.

Looking Ahead

Several key themes require monitoring through 2025:

·     AI infrastructure efficiency and its impact on the competitive landscape;

·     Public market valuations given high-tech stock concentration;

·     Rate environment effects on venture capital deployment; and

·     UK policy evolution around compute access and talent attraction.

While DeepSeek's breakthrough introduces new efficiency considerations, the fundamental thesis driving the Fund's investment strategy remains unchanged.

In fact, the DeepSeek breakthrough reinforces our investment thesis in three key ways:

·   Reduced Implementation Costs: Lower inference costs accelerate enterprise AI adoption, expanding the market for the Fund's portfolio companies;

·    Capital Efficiency Advantage: The Fund's portfolio companies build on existing AI infrastructure rather than developing foundational models, requiring far less capital while capturing significant value; and

·    Specialization Premium: As base AI capabilities become more accessible, domain expertise and vertical-specific solutions (the Fund's focus) command increasing premiums.

For the Fund's investors, these market dynamics suggest the Fund's portfolio is well-positioned to deliver strong returns even as the broader AI landscape evolves. We remain committed to our disciplined approach of backing technical founders solving enterprise problems with capital-efficient AI solutions.