Note from Kevin
As we close another remarkable year at AlleyCorp, I’m struck by how much the world has changed since our last New Year’s letter. With broad consumer awareness of AI, we find ourselves at the heart of a technology transformation akin to the early internet days, but on an even bigger scale.
At the early stage where we invest, the reactions to this have been mixed. Some investors acted quickly to redirect their focus entirely to AI, contributing to nearly $50 billion raised by AI startups this year (though much of this was driven by corporates). Others pushed back with cautious, thoughtful perspectives on how startups may struggle to establish moats and compete with large incumbents. The climate is both exciting and uncertain: the business models that will ultimately be successful, as well as broader debates around copyright, regulation, and safety, are still open questions.
One thing we are certain of is the essential role early-stage startups will play as a force for innovation and progress. While the megacap technology companies are making significant strides in AI, startups have the opportunity to build a supporting ecosystem around software, hardware, and compute, as well as to deliver novel value to consumers whose needs may be overlooked by the large incumbents. There are still so many problems to solve and we’ve never had better tools to solve them. We cannot wait to see how this technology will be wielded by entrepreneurs to make the world healthier, more efficient, and more equitable.
This year, we maintained an accelerated pace of incubating new ideas, with ten new companies either in advanced R&D or recently funded. We’re excited to share more details about these companies soon –– they span enterprise software, deep science, healthcare for women and at-risk populations, e-commerce, and of course, AI.
Like many of our peers, we also focused on partnering closely with our founders through a difficult fundraising environment that persisted throughout the year, particularly at the later stages. We are extremely proud of the resilience and accomplishments of our founders, who collectively announced over $300 million in follow-on capital this year.
After a large team expansion in 2022, we spent this last year integrating as a team of 26, with memorable offsites in Cartagena and Provence. The diversity of expertise within our new team has helped us expand our surface area across several exciting new domains, invest in 28 new founders, and nurture and support their companies.
By the end of this year, we’ll move into our new Nolita headquarters with a community of VCs and startups with us (please feel free to reach out if you’re interested in learning more about workspace in our building). Our conviction in New York tech remains unshaken, and we look forward to building this exciting new hub alongside all of you.
Portfolio Fundraises in Q4
EnCharge AI announced $22.6 million in new funding to commercialize its AI chips. Investors in the round include AlleyCorp, Anzu Partners, VentureTech Alliance (TSMC’s venture capital arm), RTX Ventures, ACVC Partners, and others.
New Investments
AlleyCorp co-led Agentio’s $4.25 million Seed round with Craft Ventures. Antler, Protagonist, Permanent Capital, Wieden+Kennedy CEO Neal Arthur, creator Cody Ko, and others participated in the round. Agentio is the first ad platform for creator content that is operating at scale. Read more about why we invested here.
Inductive Bio, which is developing a machine learning platform to accelerate the compound optimization process, raised a $4.3 million Seed round led by a16z Bio + Health and Lux Capital, with participation from AlleyCorp, Character, Bessemer Venture Partners, and others.
AlleyCorp led Stepful’s $11.7 million Series A round. Stepful is a platform revolutionizing how healthcare systems tackle talent shortages by upskilling their existing workforce and training new talent from underserved communities. SemperVirens, Reach Capital, Company Ventures, Green Sands Equity, and 01 Advisors also participated in the round. Read more about why we invested here.
AlleyCorp invested in Koop, an insurance technology company for the robotics sector. Koop recently announced a strategic investment from Hyundai and Kia, a partnership that will allow them to expand their engineering, product, and distribution capabilities.
From Our General Partners: Predictions for 2024
Marshall Porter, Diversified Technology
In the world of AI, adoption will accelerate as more technical and product talent flocks to build the foundation, tooling, and application layers. As open source LLMs catch up to proprietary ones, we’ll see focus shift to training on the combination of open and proprietary data that drives ever greater value, and the first really innovative AI-native applications emerge for both consumers and enterprise. Most importantly, the impact of AI’s “creative” side will continue to emerge (while the efficiency-driven applications still take the lions share of adoption at the enterprise level—for now).
Apple’s VisionPro will catapult spatial computing forward and capture our imagination of what’s possible with the first new computing platform in a generation. Leveraging finger gestures and our eyes as input “devices” coupled with a newly immersive and realistic experience, media, sports, gaming, and even our workspace start to evolve as we re-think these experiences. And we spend too much time on X debating the etiquette of how, when, and where it is appropriate to use these devices.
The wider availability and more accessible pricing of weight loss drugs will extend the GLP-1 phenomenon outside megacities in the US and have an impact on the broader economy—less on airline fuel and more on apparel, gyms and fitness, and wellness and maintenance. Paradoxically, junk food purveyors are impacted less than expected as people realize they can still eat those (or… even primarily those) and the wellness industry accelerates as consumers are both more aware and feel a new lease on life. More importantly, at the individual level, we think an incredible amount of previously suppressed human potential and confidence will be unlocked, driving better education outcomes, better wages, better dating and mating prospects, and beyond.
With the “easy buttons” of paid growth channels increasingly inefficient and indefensible, retailers will focus on driving efficiencies in their P&L through better logistics, inventory management, demand prediction, and returns management. The remaining obvious growth lever—cross-border—gets a new look given the saturated growth channels domestically.
Brenton Fargnoli, Healthcare
With value-based primary care in full swing, value-based specialty care focused on fields like oncology, cardiology, and musculoskeletal will come into the fore this year. For this next generation of value-based care companies, we think physician enablement leads the way with a more capital efficient approach than health plan or clinic-based models.
Necessity is the mother of invention, and hospitals who want to survive have a desperate need to become efficient. We’ll see health systems go deeper within their organizations to find operational efficiency, modernizing previously overlooked areas like supply chain management, food services management, and others.
The Uniteds and Aetnas of the world –– of which there are only a handful –– have substantial home-grown initiatives, too many pilots, and an overwhelming number of startups pitching them. We think we’ll see the 300+ small and medium-sized community health plans become the new go-to-market beach-head motion for healthcare startups.
Medicare Advantage perennially dwarfs Medicaid in venture investment (by some accounts by 20x). With renewed pressure on Medicare Advantage, we expect to see this wide disparity finally begin to shrink as the greenfield opportunity in the Medicaid segment is now too large to ignore.
We see huge momentum in psychedelics resulting in concrete regulatory progress this year with the potential for MDMA and/or Psilocybin to be approved by the FDA. This will usher in a new treatment paradigm for mental health.
Abe Murray, Robotics
As the global workforce is aging and shrinking, labor is scarce and getting more expensive. This trend will continue in 2024, pushing companies to choose automation in labor-constrained sectors like warehousing, manufacturing, agriculture, and hospitals.
While we’re excited about the promise of foundation models and new technologies that will eventually power production robots, companies deploying robots at scale with high reliability will continue to use traditional AI, like motion planning and control techniques, in 2024. At the same time, we expect robotics startups to build on the development of Google’s robotic transform model RT-2, and enter a race to build proprietary data sets of robotic inputs and action outputs for specialized applications.
2024 will be the first year we see humanoid robots doing real work at meaningful scale. After winning a pilot with Amazon Research Center and building a factory for scale production of Digit, Agility Robotics is leading the way, but we expect strong progress from new entrants throughout the year.
Robotics companies will need to progress past pilot purgatory and earn real revenues this year if they hope to be winners, as the environment will force them to be capital efficient, earn their valuations, and restore runway through revenue.
Tanya Beja, Social Impact
We expect to see several startups building on foundational models to explore meaningful, step-change improvements in how people explore eligibility, apply for, and maintain social service benefits. The dizzying array of AI applications in the private sector should begin to spillover into basic public sector work, with government-resident interactions and customer service experiences being low-hanging fruit. The strongest startups will be able to very easily explain their value proposition to social sector leaders without overemphasizing the underlying technology.
While many investors have evacuated K-12 edtech, we expect to see major AI innovation in two key areas. First, we will finally begin to deliver on the promise of individualized learning by student skill level and aspiration. Second, more AI companies will emerge supporting everything from assessments to lesson planning to teacher-parent interactions.
The shift towards lifelong learning, partly enabled by the emergence of online and remote learning technology, will continue to accelerate. Employers will increasingly recognize the importance of reskilling and upskilling valuable workers, particularly as longer lifespans and later retirement lead to an older workforce and retention continues to be an issue among younger workers.
As we’ve seen in other areas (most notably healthcare), a slew of startups will emerge leveraging a combination of digital, asynchronous, mobile, and AR/VR tools to deliver training, upskilling, and accreditation for the hundreds of thousands of climate-oriented jobs accelerated via the IRA and the broad shift to sustainable energy. Making such platforms affordable and accessible through business model innovation will be critical for filling gaps quickly and driving immediate value to employers.
We’ve reached a point where more than one-third of US adults are working in gig, freelance, or independent work. We expect a breakout, Shopify-like platform to emerge in 2024 to support the business and growth needs of independent small business owners and operators.
Annual Impact Report
Our Social Impact team recently shared their second Annual Report, highlighting the impressive entrepreneurs they backed in 2023 and their ambitions for 2024.
With a focus on education, future of work, health equity, government services, and more, we are committed to investing in founders tackling pressing social and economic challenges. Our investments this year supported digital career pathways for low-wage workers, mental health support for K-12 students, and expanding access to lifesaving prescription drugs. Learn about our progress and what's next in the full report here.
News
AlleyCorp investors Joseph Krause and Brannon Jones were featured on The Startup Blueprint to discuss what’s ahead for robotics and AI in 2024.
Tanya Beja, AlleyCorp’s Social Impact General Partner, joined the Coffee with Ken podcast to discuss creative approaches to social innovation and the Awarepreneurs podcast for a conversation about what we look for in impact businesses.
AlleyCorp Healthcare General Partner Brenton Fargnoli discussed the need for more physician startup CEOs in a recent feature in STAT.
Transcend Therapeutics recently presented early phase 2 clinical trial data indicating strong results in treating PTSD.
Thyme Care, AvoMD, and Memora Health were named as CB Insights Digital Health 50 companies for 2023.
Patch Caregiving and their successful partnership with UPS was highlighted in a Forbes feature on reimagining childcare for frontline and hourly workers.