Going from carbon-based to 100% clean energy overnight…
DeepMind is launching a sister company…
A Web 3.0 company has risen 12X this year…
Every year around the time of the Thanksgiving holiday in the U.S., I dive deep into my research with respect to what I expect to see happening in the new year.
It’s a fun process that results in a series of predictions and editorial content that I issue for the new year beginning on December 20.
Predictions aside, it is an important process for me. It allows me to form my thoughts around industry, the economy, sectors in which I expect to see outsized growth, the pandemic, and also trends in venture capital (VC) and private equity.
The latter has become a far more critical factor than in years past. For more than a decade, the “game” played by the VCs and private equity firms has been to keep promising private companies out of the public markets.
By doing so, they are able to capture the majority of the investment returns for themselves. This also allows them to time their exit into the public markets when assets are overvalued. This happens at the expense of unsuspecting retail investors.
It wasn’t like this back in the ‘90s or early 2000s, when companies would have their initial public offerings (IPOs) at sub-$1 billion valuations. Normal investors had access to those companies when their best growth years were ahead of them. No more…
And I have to say, my outlook was pretty grim back in 2019. There just weren’t good alternatives in place that might allow normal investors to gain access to great companies at an earlier stage.
But changes that began in 2020 for special purpose acquisition corporations (SPACs) created a fantastic window of opportunity for smaller private companies to access the public markets at small-cap valuations… just like back in the late ‘90s.
By late 2020 the SPAC market took off like a rocket ship. And this year has been unlike any other. Even with delays caused earlier this year by a series of accounting changes required by the U.S. Securities and Exchange Commission (SEC) for SPACs, we still saw a record year in 2021.
It’s easy to see the impact of the changes to the SPAC structure on the overall market.
We still have a month to go, but 2021 SPAC IPOs are now 125% higher than 2020, which was also a record year. And with 295 SPACs filed and pending, the final year numbers will be even higher.
The amount of capital that was raised in these SPAC IPOs also hit record levels:
Here again, 2021 is already 83% higher than last year’s record. And there is still an additional $64 billion in filed but pending capital on deck for IPOs in the coming months. In terms of amount raised, we can expect that 2021 will be up at least 100% compared to last year.
And even more exciting is the number of business combinations that have been announced. To me, this is a far more important metric.
It’s one thing to have the capital raised, but the number of announced business combinations is what tells us how active the market is for private companies going public via a SPAC.
This has been a fantastic year in that regard. 170 business combinations have been closed (dark blue), while an additional 119 (light blue) have been announced already and are pending shareholder approvals.
These numbers tell us that early stage private companies are breaking free of venture capital and going public at much lower valuations. By using SPACs, they are able to do so for a fraction of the cost of a traditional IPO, on their terms. And they can provide liquidity to both their early investors and their employees.
Basically, everyone wins except the investment banks. And normal investors once again have access to pre-IPO shares in high-growth, early stage private companies.
These dynamics were the catalyst for me launching Blank Check Speculator at the beginning of this year.
2021 played out exactly as I predicted and hoped it would. And the pipeline is full for 2022. We should expect to see a continuation of this trend over the next year.
We have a lot to be excited about as the number of investment opportunities that were previously inaccessible is about to explode. If you’d like to learn more, please go right here.
Tomorrow, I’m going to dive in on another key development in early stage capital formation that will form an exciting dynamic in 2022.
Another promising development on the nuclear fusion front…
The largest venture capital (VC) raise in the emerging nuclear fusion industry just happened. A company called Helion Energy just raised $500 million in a funding round led by Sam Altman.
This is significant because Altman is the former president of Y Combinator, the world’s largest and most successful early stage accelerator. Altman knows a promising early stage company when he sees one.
And this funding round was unique in that it included an additional $1.7 billion worth of investments tied to milestones. That means Helion will receive these funds as it meets its stated milestones in developing its nuclear fusion reactor.
As a reminder, nuclear fusion involves taking two separate nuclei and combining them to form a new nucleus. This produces an enormous amount of energy. And it is 100% clean. Unlike nuclear fission, forms of nuclear fusion produce little or even no radioactive waste.
Altman believes, as I do, that nuclear fusion technology is the future of energy. This is the only clean energy source that can produce enough energy to fuel our electrical grids with 100% clean electricity that doesn’t damage the environment in any way.
And Helion’s approach is interesting.
Helion’s Sixth Prototype
Source: Helion Energy
The company is focused on compact nuclear reactors that can fit inside a shipping container. That means each reactor could be loaded onto a semitruck and driven to any location.
Once there, the reactor could be installed and plugged into a local power grid in order to supply clean energy to the surrounding area.
This is a powerful concept. And it could enable a decentralized, robust power grid.
And get this – Helion has already demonstrated that its reactor can produce plasma at 100 million degrees. That’s significantly hotter than the temperature at the interior of the Sun. Naturally, that produces a lot of heat.
Helion’s unique approach is to use induction (the production of an electric current by varying magnetic fields) to generate electricity. By doing so, it skips the process of using water to produce steam, and then ultimately electricity.
Based on where it is today, Helion believes that it can demonstrate a reactor capable of industrial-scale power by 2024. That’s only 24–30 months away.
And Helion is taking a Silicon Valley approach with its business strategy. The company plans to initially deploy these reactors at data centers. This makes perfect sense.
It’s common to hear people complain about how much energy it takes to run the bitcoin blockchain, but we never hear any complaints about the energy required to run the data centers that process all of the world’s internet traffic and phone calls.
Data centers around the world require far more energy than all of the computational power required to run every blockchain in operation today. And I would argue that the blockchain industry is far more proactive in working towards using clean energy to run their networks.
That’s why Helion plans to install its fusion reactors right next to data centers. This is a smart business strategy with a clear target market that is in need of clean energy that runs 24/7.
“Plugging in” a fusion reactor next to a data center would convert a facility to 100% clean energy overnight. This will be well-received and set Helion up for rapid adoption.
So this is absolutely a company to watch closely in the coming years. It will be transformational if Helion can hit its target milestones. I can’t wait to watch this story unfold.
The latest announcement from DeepMind…
Google’s artificial intelligence (AI) division in the U.K. – DeepMind – just launched a new sister company called Isomorphic Labs that will focus on drug development. This is big news.
If we remember, DeepMind revealed its AlphaFold AI software about this time last year. I called that possibly the biggest scientific development of the century.
That’s because AlphaFold can accurately predict the folding of a protein, based solely on its amino acid sequence, with 92.4% accuracy. Understanding how proteins fold has been one of the grand challenges of the life sciences industry for the last century.
This now creates an incredible foundation for developing new compounds and therapies. There’s no doubt this will lead to cures for previously untreatable diseases.
It seems this development convinced DeepMind that its technology could have a transformational impact on the biotechnology industry if it focused its efforts in that direction. And that’s exactly what Isomorphic Labs will do. It will be an AI-powered computational biology company.
DeepMind CEO Demis Hassabis will serve as Isomorphic’s CEO while the company staffs up and builds a team of both AI and biotech experts to work together.
And Hassabis announced that the company has identified several areas of focus at launch. It will explore protein-to-protein interactions. It will analyze how molecules bind to proteins. And it will assess how existing drugs interact with human proteins.
The team will then use the insights gleaned from this research to home in on a therapeutic development strategy.
So this is going to be an exciting company to watch.
It looks like Isomorphic Labs will remain a subsidiary of Google, so our investment opportunities may be limited.
But with that said, we should keep an eye out for any strategic partnerships that Isomorphic puts in place with biotech companies. Anyone working with Hassabis and Isomorphic, by definition, will have a strategic advantage.
Web 3.0 gaming is on the rise…
Another major funding round in the Web 3.0 gaming sector caught my eye. An outfit called Mythical Games just raised a $150 million Series C round at an incredible $1.25 billion valuation led by powerhouse VC firm Andreessen Horowitz.
Web 3.0 gaming refers to blockchain-based “play-to-earn” games. These are games in which players can own useful objects within the game itself in the form of non-fungible tokens (NFTs). And players can buy, sell, and trade these NFTs in the game to earn real money from playing.
And this is a sector that’s absolutely on fire right now. To give us an idea of how quickly Web 3.0 gaming is moving, Mythical Games has already completed three VC funding rounds this year.
The company’s Series A1 round raised $28.5 million back in January. That valued Mythical Games at $93.5 million. Then the Series B round raised $75 million in June, valuing the company at $435 million.
With the Series C round now complete, Mythical Games has increased in value by over 12X since the start of the year. That’s incredible. And it speaks to how fast this new world of play-to-earn gaming is accelerating.
What I love about Mythical Games is that the company is bringing the Epic Games business model to Web 3.0.
For the sake of new readers, Epic Games created the popular game Fortnite based on its own software platform called the Unreal Engine. And Epic Games licenses the engine out to other companies. That means outside developers can take it and build new games on top of it.
This is a brilliant move because Epic Games earns royalties on all games developed using its platform. The company will get 5% of all future revenues right off the top. This is a great residual income stream.
And now Mythical Games is doing the same thing with its Mythical Economic Engine. This engine will help other companies build their own play-to-earn games, and Mythical will earn royalties on each new game created.
As for its own flagship game, Mythical Games is developing Blankos Block Party. As the name suggests, it is an open-world multiplayer game designed to look like a giant block party. Here’s a visual.
Blankos Block Party
Source: Mythical Games
Here we can see an avatar in the game. Players can use their own avatars to explore the world and find useful objects in the form of NFTs. These NFTs can be sold in the marketplace to generate a real income. And they can be used to design and build areas within the game itself.
I should point out that Blankos Block Party is still in development, but an early version of the game is open to players right now. And we can expect the latest funding round to accelerate its development rapidly.
So this is another gaming company that we should keep an eye on going forward. Epic Games has already proven that the business model works, and Andreessen Horowitz sees a bright future for Mythical Games. Let’s keep this company on our radar.
Editor, The Bleeding Edge
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