Nintendo game director Shigeru Miyamoto announced this week that the company and Illumination Studios are nearly ready to start animating the sequel to the 2023 box office smash The Super Mario Bros. Movie. The film made roughly $1.4 billion worldwide on a budget of just $100 million and gave some credence to the idea that movies based on video games aren’t all dumpster fires. The original Super Mario Bros. video game has sold 40 million copies since it debuted in 1985. Its sequel has sold less than 20% of that. Nintendo may be at risk of repeating itself by repeating itself.
Tech giants have long repurposed their spoils toward watering the seeds of promising startups. Nvidia is no different, employing a time-tested strategy of investing in young companies that exist in industries either adjacent to or dependent on its computer chips, such as AI firms or drug-discovering biotech companies. The goal is a symbiotic relationship. Startups get capital and advice, while Nvidia gets first-hand accounts of how its chips are implemented in real-world settings — as well as the much more lucrative benefit of possibly growing or creating entirely new markets for its semiconductors.
“The [startups] that succeed will grow Nvidia as a whole, and the value of this will be way greater than the financial returns from the investment,” Avram Miller, who co-founded Intel’s similarly strategic VC arm in the 1990s, told the WSJ. “Nvidia realizes it is not a time for over-analyzing.” On the roulette board that is VC investing, Nvidia is placing its chips, literally and figuratively, on an increasingly wide array of companies:
Last year, Nvidia invested in about three dozen companies, per Dealogic data seen by the WSJ, or around three times more than it did in 2022. The total value of its investments hit around $1.5 billion at the end of January, a massive increase from around just $300 million a year ago.
Investments include $50 million in drug-discovery firm Recursion Pharmaceuticals, robotic surgical assistance manufacturer Moon Surgical, and Canadian AI company Cohere. Nvidia has also invested in the publicly traded voice recognition software company SoundHound AI, news of which triggered a nearly 70% rise in SoudHound’s share price.
End of an Era: Still, Nvidia’s entrance into venture capital comes just as the industry’s freewheeling days of hyper-techno-optimism are coming to a close. In 2023, VCs invested roughly $170 billion across 15,766 deals, well down from 2022’s $242 billion spread over 17,592 deals, according to a recent industry report from EisenAmper. Meanwhile, Carta, a firm that tracks and manages company share ownership and transfers, told the WSJ that 212 of the companies it tracks shuttered in 2023, the largest such figure in several years. We expect they’re in startup heaven, powered by Nvidia chips, of course.
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REGULATION
Hedge Funds Oppose India’s New ‘End Investor’ Disclosure Rule
If foreign short-sellers are going to make India’s markets miserable, the country’s Securities and Exchange Board (SEBI) wants to be able to see them coming. But big overseas hedge funds are furious about new transparency rules requiring them to reveal all their “end investors.”
Short End of the Stick
Most short-sellers stay behind the scenes, quietly placing their bets on companies they consider overvalued and destined to see their stock fall. But some take it further, taking short positions and then publicly trumpeting their case to the outside world — and often immediately profiting from a stock decline. In early 2022, short-selling firm Hindenburg Research took on Indian conglomerate Adani Group, which Hindenburg accused of “brazen stock manipulation and accounting fraud scheme over the course of decades.” In just a few days, Adani lost more than $100 billion in value as investors fled.
Foreign investment groups, which believe SEBI’s new rules create an extremely difficult process for putting money into Indian markets, aren’t too keen on playing along, the Financial Timesreported, and might just take their bets elsewhere:
Though reporting exclusions seem to be in place for university endowment funds and for hedge funds that partner with major banks, other hedge funds with more than $3 billion of assets in the Indian market look to be right in SEBI’s crosshairs.
London-based hedge fund AIMA, which manages more than $3 trillion in assets, wrote in a letter to SEBI recently, “The changes create severe practical difficulties for [foreign investors] wishing to make legitimate investments in India.”
Eye on China: In addition to responding to the Hindenburg-Adani shakeup, SEBI’s new transparency rules were designed to better track money coming in from nearby countries, especially China. Amid border skirmishes between the two Asian countries in 2020, India passed new rules that require neighboring nations to obtain special government approval before entering its markets. Decoupling is just the name of the game these days.
Written by Griffin Kelly
PRIVATE EQUITY
Klarna Co-founder Is Loading Up on Shares Ahead of Expected IPO
Most companies keep things as buttoned up as possible ahead of a possible initial public offering. Klarna isn’t one of them.
The palace intrigue continues at the Swedish fintech startup, just weeks after tensions between two of the company’s co-founders became a full-blown boardroom dispute that sucked in Silicon Valley venture capital big timber Sequoia Capital, owner of a 22% stake in Klarna.
Trouble in Paradise
At the heart of the matter is an age-old Silicon Valley question: how powerful should a founder be — especially one who has left the company? Klarna was co-founded by three men, including current CEO Sebastian Siemiatkowski and Victor Jacobsson, who left the company in 2012. But questions about Jacobsson’s role in the corporate governance structure have apparently stirred the pot. As the Financial Times reported over the weekend, Siematowski supports removing special voting rights for certain shareholders (read: the founders) as the company plans to clean up its governance ahead of an expected New York listing this fall. Jacobsson has been less vocal about the matter but has been boosting his holdings all along:
The FT reported that Jacobsson has bought up shares via special-purpose vehicles and may now have a stake that’s even above Siematowski’s 8%. Jacobsson had also been actively investing in Klarna using his “right of first refusal” to buy up Klarna shares in the secondary market.
The issue of Jacobsson’s influence at Klarna spilled over into infighting at Sequoia, which suddenly aborted a plan last month to try ousting Klarma’s chairman Michael Moritz, a Silicon Valley high-flier who just left Sequoia as a partner last summer.
Careful What You Wish For: Amid the governance battle is the reality of Klarna’s valuation heading in the wrong direction. As a Bloomberg report noted, it was merely three years ago the company was a prized Sequoia holding with a $45.6 billion valuation. In 2022, the company raised additional financing at a relatively cut-rate valuation of $6.7 billion, as higher interest rates don’t align well with Klarna’s “buy now pay later” credit offering to consumers. Klarna is hoping it doesn’t have to pay later for failing to clean up its own mess today.
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Extra Upside
Sickness strategy: With Covid in its rearview mirror, Pfizer moves on to cancer meds.
They mean it this time: Congress reeeeally wants to ban TikTok or at least separate its US business from its Chinese parent company.
End of an Era: Still, Nvidia’s entrance into venture capital comes just as the industry’s freewheeling days of hyper-techno-optimism are coming to a close. In 2023, VCs invested roughly $170 billion across 15,766 deals, well down from 2022’s $242 billion spread over 17,592 deals, 
