Thematics Venture Vision How Long Before AI Listings-110159787

M Global FoundationThematicsVenture Vision: How Long Before AI Listings?Morgan Stanley & Co. International plc+Edward StanleyEquity Strategist Edward.Stanley@morganstanley.com +44 20 7425-0840 Matias OvrumEquity Strategist Matias.Ovrum@morganstanley.com +44 20 7425-9902 Our Venture Vision weeklies look at (1) early-stage cross-theme funding patterns; (2) relative valuations between themes; (3) public versus private valuations; and (4) the resulting anomalies within certain themes. Please let us know if you would like our excel database of >45,000 VC deals categorised by theme, country, value and date. We also send this file as a weekly distribution if you would like to receive it regularly. See here for our global market synopsis. See here for our longer analysis on the state of the VC market, particularly as it relates to non-US Venture and innovation acceleration. An estimated 4.5% of the startups that have gone through Y Combinator since 2010 have become billion-dollar companies. 231 of its companies are tagged as Generative AI; most were backed in 2023. The average M&A exit for its companies takes just under 7 years and the average IPO just over 9 from backing.Y Combinator is a prolific backer of early-stage technology companies. They have one of the best records of any early-stage investors in finding Unicorns that go on to list and disrupt industries. Their batch intakes are winter and summer. Since 2005, they have invested in over 5,000 companies that have a combined valuation of over $600B. Y Combinator's size and track record make it is a useful bellwether to track potential disruptors to public market companies. For example, and in a sign of the shifting multi-polar times, Y combinator recently made its first ever investment in defence, continuing a push for deflationary innovation in both Aerospace and Defence.What then, can its portfolio tell us about the direction of travel for Generative AI use cases, killer apps and the time horizon on which public market investors may be able to get exposure to these names?After a series of generative AI investments in the winter and summer batches of 2023, there has been a fairly meaningful pullback; more than 50% from peak. However, Generative AI still makes up c10% of new investments. More broadly, AI is tagged as a business strategy in half of the most recent intake of companies, up from less than 5% a decade ago.Exhibit 1:(1) Overall AI and generative AI investments by batch; (2) Generative AI investments and as a portion of total YC investments0%10%20%30%40%50%60%020406080100120140160180S05W07S08W10S11W13S14W16S17W19S20W22S23AIGen AIAI (% Total)0%2%4%6%8%10%12%14%16%18%20%0102030405060S05W07S08W10S11W13S14W16S17W19S20W22S23Gen AIGen AI (% Total)Source: Y Combinator, Morgan Stanley ResearchThis shift has predominantly come at the expense of investment in B2B SaaS start-ups, which as a vertical was well over 50% of all deals over the past decade but has Morgan