TheChek News Flow

Last week’s slowdown continued, as big rounds were hard to come by this week. One big AI round likely helped boost dollar figures — and interest — but aside from that large funding, rounds dried up. It was a holiday week, so that could be a reason — or maybe VCs’ checkbooks are cooling off after a strong start to the year when it came to nine-figure rounds.

1. xAI, $6B, artificial intelligence: Elon Musk’s generative AI startup, xAI, officially announced its long-awaited fundraise — making it the second-most-valuable generative AI company in the world behind only competitor OpenAI. The $6 billion round included investment from the likes of Valor Equity Partners, Andreessen Horowitz, Sequoia Capital and Fidelity Management & Research Co., among others. The new funding values the company at $24 billion post money, well behind OpenAI’s $86 billion valuation but well ahead of the $18 billion generative AI startup Anthropic is now valued at after its last raise. The xAI round had been rumored for months. The company was announced just last July and released its ChatGPT competitor, Grok, last November, and introduced its latest AI model, called Grok-1.5, just earlier this year. Grok is trained off data from another Musk-owned company, X, formerly Twitter.

2. Solutions by Text, $110M, fintech: Paying bills has gotten dramatically easier in the past few decades thanks to online and mobile payments. However, a Dallas-based startup has taken it a step further. Solutions by Text is exactly what it sounds like, and the startup locked up a fresh $100 million of funding this week. The raise is a mix of equity and debt, although the exact ratio was not disclosed. Edison Partners and StepStone Group co-led the equity portion. The startup allows its customers the ability to conduct an array of financial services over text, including loan origination, collections and bill payment. Founded in 2008, the company has raised $145 million, per Crunchbase.

3. Frore Systems, $80M, mechanical engineering: One aspect of AI that is likely to see more funding is some of the technologies on the periphery that make it possible. Frore Systems secured an $80 million Series C led by Fidelity Management & Research Co. The San Jose, California-based startup has developed a solid-state active cooling chip — AirJet — that allows users to leverage AI even on the edge of networks or on edge devices. Since AI applications generate more heat than many devices can handle, the chip allows them to remain cool and not lose performance. Founded in 2018, Frore has raised $196 million, per the company.

4. Mavenir, $75M, network software: Mavenir may look familiar on this list to some. After raising $250 million in 2022, the network software provider locked up another large tranche of money, closing a $100 million round led by Siris Capital Group about a year ago. The Richardson, Texas-based company was at it again this week, raising a $75 million investment from “an existing investor,” according to the company. Mavenir builds cloud-native software that allows enterprises and service providers to manage complex networks without relying on older telecom hardware such as routers and switches. This allows customers to scale operations more quickly on the cloud and without the expense of equipment. Founded in 2005, the company has now raised $1 billion, per Crunchbase.

5. CinRx Pharma, $73M, biotech: This week’s top biotech round isn’t as big as it is on most weeks, but that follows the general trend. CinRx Pharma closed a $73 million round from undisclosed investors. The Cincinnati-based firm has a diverse portfolio of companies developing a variety of medicines and therapies. In early 2023, one of its former portfolio companies — CinCor Pharma — was acquired post-IPO by AstraZeneca in a deal worth $1.3 billion upfront. Founded in 2015, CinRx has raised $176 million, per the company.

6. BabylonChain, $70M, blockchain: Palo Alto, California-based BabylonChain, a developer of security protocols for decentralized systems, completed a $70 million round led by Paradigm. Founded in 2022, the company has raised $103 million, per Crunchbase.

7. (tied) Squared Circles, $40M, consumer: Los Angeles-based Squared Circles, a consumer-focused studio incubating consumer brands, closed a $40 million Series A funding round led by L Catterton. Founded in 2020, this is the firm’s first disclosed fundraise amount, per Crunchbase.

7. (tied) Transcend, $40M, privacy: San Francisco-based Transcend, a data privacy platform, raised a $40 million Series B funding led by new investor StepStone Group. Founded in 2017, Transcend has raised nearly $90 million, per the company.

9. Gameto, $33M, biotech: New York-based Gameto, a biotech firm dedicated to women’s health, raised a $33 million Series B led by Two Sigma Ventures and RA Capital Management. Founded in 2020, the company has raised $73 million, per Crunchbase.

10. Reibus, $30M, industrial: Atlanta-based Reibus, an independent metals marketplace, raised a $30 million round in a combination of equity and debt from existing investors including Canaan Partners and Nosara Capital. Founded in 2018, the company has raised nearly $132 million, per Crunchbase.

No company came close to raising what xAI did. The biggest round outside the U.S. came from a Nordic country.

The lawsuit claimed Hermès only gives customers with “sufficient purchase history” a chance to buy a Birkin bag.

US consumers suing French luxury house Hermès have broadened their lawsuit accusing the company of forcing buyers to spend thousands of dollars on other products before they can purchase one of the company’s famed Birkin bags.

Another California resident joined the lawsuit in San Francisco federal court on Thursday, becoming the third named plaintiff in the proposed class action that was first lodged in March.

The lawsuit claimed Hermès only gives customers with “sufficient purchase history” a chance to buy a Birkin bag, which are handmade and can cost thousands of dollars.

The newly amended complaint also added more details about the purported market for luxury handbags, in a bid to defeat Hermès’ initial arguments seeking to dismiss the case.

“The nominal retail price of a Birkin bag is a facade, masking a hidden lottery system that forces consumers to purchase substantial amounts of Hermès ancillary products to ‘qualify’ for the mere opportunity to buy a Birkin,” the amended lawsuit said.

Hermes and its legal team at Latham & Watkins did not immediately respond to requests for comment. Lawyers for the plaintiffs declined to comment.

In a filing last month, Hermès called the lawsuit “far-fetched.” Hermès told the court that customers without a purchase history can still buy a Birkin, and it argued that such a requirement would not be illegal in any case.

“Hermès faces clear competition from different sellers on the wide range of products it sells,” the company said.

Thursday’s amended complaint said “the Birkin bag’s exclusivity, limited availability, and iconic status make it difficult to find a perfect substitute.”

The buyers said offerings from rival luxury brands such as Gucci, Prada and Louis Vuitton “lack the unique brand identity and exclusivity that define the Birkin bag.”

The new complaint also pointed to statements that Hermes made in a 2022 trademark lawsuit it brought against artist Mason Rothschild.

In that case, Hermès said the Birkin’s “mysterious waitlist, intimidating price tags and extreme scarcity have made it a highly covetable ‘holy grail’ handbag that doubles as an investment or store of value.”

This week, the gemstone giant said it would stop making lab-grown diamonds for jewellery to focus on marketing the “unique attributes” of natural stones. Stakes are high after sales plummeted in 2023, and as owner Anglo-American explores a sale or spin-off.

In 2018, De Beers, the 136-year-old diamond company, shocked the jewellery industry when it announced that after years of resistance, it would begin selling lab-grown stones through a new brand called Lightbox.

Just six years later, on Friday, De Beers announced at the JCK jewellery trade show in Las Vegas that it would stop producing lab-grown diamonds for jewellery. Lightbox will continue to exist, but will source stones from existing inventory. New production will be focused on “industrial and technological applications,” and future sourcing will be considered “in due course,” according to the company.

In an exclusive interview with The Business of Fashion, De Beers chief executive Al Cook said the company is rolling out a new strategy called “Origins” to revive interest in its core business of mined diamonds, marketing them as a category, rather than simply marketing the De Beers brand.

”We truly believe we need to do better by telling the story of where the natural diamond comes from; why it’s so special,” Cook told BoF.

To do so, it’s making changes across its business. De Beers is inking new partnerships with Chinese jewellery giant Chow Tai Fook and Signet, the parent of mall mainstay jewellery brands like Kay, Zales and Jared and the largest seller of diamond jewellery worldwide, to highlight natural — also known as mined — diamonds. In the third quarter, De Beers and Signet will roll out a new campaign highlighting what it says are the “unique attributes of natural diamonds.”

Technology will also play a role: This week, it unveiled a new diamond verification instrument that can distinguish between mined and man-made diamonds, both loose and in settings, and plans to use blockchain technology that can be used to show the eventual buyer exactly where their stone came from.

As part of its “Origins’' strategy, De Beers will also eliminate $100 million in costs through restructuring and selling off non-diamond assets.

“In an era where nothing is what it seems to be, where there’s artificial intelligence, there’s deep fakes, people want authenticity,” Cook said. “A natural diamond is by definition, the epitome of authenticity. It was created a billion years ago. There are fewer and fewer of them being produced. We believe it was the right time to come back and to tell that story.”

For much of the 20th century, De Beers controlled the world’s diamond trade, and as such, much of its marketing revolved not around the De Beers brand, but the diamond category as a whole. In 1947, it essentially invented the concept of a diamond engagement ring back in 1947 with its now iconic “A Diamond Is Forever” campaign.

But by a few years into the new millennium, legal challenges had eroded De Beers’ control of the industry, and its marketing shifted to be more De Beers-specific. In 2015, the Diamond Producers Association was formed to fill that void, and in 2020, it rebranded to the Natural Diamond Council “in anticipation of a need to speak very specifically to the unique values of natural diamonds,” said David Kellie, chief executive of the NDC. Today, the organisation still markets that proposition, positioning mined diamonds as “real, responsible and rare.” Just this week, it dropped its latest campaign starring actress Lily James.

But De Beers still needs to do more to convince consumers that despite the fact that their variations are indistinguishable to the naked eye, natural and lab-grown diamonds are, in fact, different — for both the industry’s sake and De Beers’ itself.

After two blockbuster years during the pandemic, De Beers had a very tough 2023: Sales fell by a third, forcing it to drastically pull back on diamond production and stockpile stones in a bid to stop slumping prices. At its first sale of 2024, it cut prices by 10 percent.

The stakes for a turnaround are high as majority owner Anglo-American explores options to divest from the company, including a sale or spin off. The collapse of a $49 billion takeover deal of Anglo-American from its rival BHP could add further pressure to separate from its underperforming gemstone unit.

Diamond suppliers generally have faced a challenge in consumers’ embrace of lab-grown diamonds, which has been growing for the past decade. In 2023, they made up around 17 percent of the overall market, according to diamond research firm Edahn Golan. A survey from wedding website The Knot also found that 46 percent of couples planned to select a lab-grown stone for their engagement rings.

But as demand for lab-grown diamonds has grown, so has supply, which has impacted prices. Lab-grown stone prices have fallen since 2015: Then, a man-made stone was sold at about a 10 percent discount to a mined one, today that number is about 90 percent.

In that sense, it’s an effective moment for natural diamonds to make a marketing comeback.

When it comes to selling jewellery, “marketing is the most important factor,” said diamond industry analyst Paul Zimnisky.

“It’s establishing natural diamonds as a product category,” he said, adding that doing so is more necessary today, as the industry faces “immense competition from lab grown diamonds but also just other luxury discretionary products and just a younger generation of consumers that wasn’t exposed to ‘A Diamond Is Forever’.”

That generation now has a chance to get to know the campaign for themselves after De Beers relaunched “A Diamond Is Forever” last year. Of course, it’s a very different environment: There’s endless competition for consumer attention, and to bring the iconic campaign into the 20th century, it’ll need some updates.

“It’s about marketing towards the diverse people who want to mark the most important moments in their life with a diamond,” said Cook. “In 1947, that was a white boy meets a white girl, that’s not the case now.”

The imagery De Beers released as part of the campaign last fall focussed on highlighting their diamonds’ natural components, with taglines like “Artist credit: Mother Nature,” and “Nature’s mic drop.” The company is also planning to ramp up its messaging around its sustainability efforts, including plans to be carbon neutral by 2030.

The hope is not to eliminate the competition from lab-grown diamonds, Cook said — a goal that, at this point, would be impossible to achieve. Even luxury labels are buying in, with Prada, watchmaker TAG Heuer and LVMH-owned jeweller Fred all rolling out lab-grown products in recent months. Instead, it’s about positioning and getting consumers to think about the two differently.

“One is a very precious rare stone that you bite to commemorate the most important moments of your life,” said Cook. “The other costs less than the cost of the dinner you’re having to celebrate your engagement.”

As evidence mounts that the economy is slowing, pressure to lower rates could build

The U.S. economy continues to lose momentum. Growth hasn’t yet slowed to the point that it would be a concern to policymakers, but it might soon if current trends continue.

Investors’ attention on Friday was initially focused on the personal-consumption expenditures price index, part of a package of data released by the Commerce Department. That makes sense since it is the Federal Reserve’s preferred measure of inflation and will help them decide whether or not to cut rates before November’s U.S. presidential election. But accompanying data on underlying economic activity turned out to be more significant.

The PCE price index rose 2.7% from a year earlier in April, in line with economists’ expectations and unchanged from the prior month. The core PCE price index that strips out food and energy, which the Fed favors, was up 2.8%, a tad more than expected.

More noteworthy were the figures for personal income and consumption. Incomes rose 0.3% from the preceding month, in line with expectations and down from 0.5% growth in March. Personal spending rose just 0.2%, below expectations and slowing from 0.7% in March. In real, inflation-adjusted terms consumption and disposable incomes both fell 0.1%.

It seems that the cumulative impact of years of inflation is finally catching up with consumers and eroding their savings cushion—something that companies selling discretionary goods from Starbucks to Kohl’s are saying in their public reports. BMO Capital Markets Chief Economist Scott Anderson noted that April’s savings rate of 3.6%, while unchanged from March, was well below the 12-month average of 5.2%.

Also on Friday, the Chicago Business Barometer, also known as the Chicago purchasing managers index and a gauge of economic activity in the region, fell to 35.4 in May from 37.9 in April. The importance of regional PMIs shouldn’t be exaggerated, but this one seemed more noteworthy than most. It was at its lowest since May 2020, during the lockdown period of the pandemic, according to FactSet.

All those readings came on the heels of a downward revision in first-quarter gross domestic product growth on Thursday, to an annualized 1.3% from an earlier estimate of 1.6%. It was mainly driven by a declining estimate of consumption, again suggesting a flagging consumer. In a note, economists at Capital Economics said they are now expecting growth of just 1.2% in the second quarter, down from an estimate of 2.7% a couple of weeks ago.

In short, signs of a slowdown are becoming hard to ignore. This may not start to influence the calculations of the Fed until it shows up more strongly in the monthly payroll numbers. Those showed some slowing in April but, at 175,000 jobs added, was still decent. The report on May will be released on Friday.

But developments in the labor market are famously a lagging indicator, meaning they show up later than other signs when an economic shift occurs. The early signals are already here.

Speech by Adm. Dong Jun echoes remarks by U.S.’s Austin playing down prospect of war, but hot spots remain

SINGAPORE—China’s defense minister sought to assuage fears of confrontation between the Chinese and American militaries a day after the U.S. defense chief did the same, part of an effort to manage tensions between the two global powers in a turbulent environment.

He also warned Washington against testing Beijing’s limits on its core interests, in a sign of how delicate and tentative the rapprochement remains.

In a Sunday speech to a security forum in Singapore, Adm. Dong Jun nodded to tensions between to the two militaries in arguing for increased exchange and cooperation.

“We believe that it’s precisely because the two militaries have differences that we need to communicate more,” Dong told the Shangri-La Dialogue, an annual gathering of defense officials. “Despite our different paths, we shouldn’t engage in confrontation with each other.”

Dong’s speech came the day after U.S. Defense Secretary Lloyd Austin told the dialogue that Washington doesn’t seek a contentious relationship with Beijing, and that a war with China is neither imminent nor unavoidable.

Ahead of the dialogue, Austin and Dong spoke face-to-face for the first time in a 75-minute meeting on Friday, when they reaffirmed plans to reopen direct lines of communication.

Tensions between the U.S. and China have flared as both powers criticized each other’s military activities around the island democracy of Taiwan and in the South China Sea, where Beijing has asserted sovereignty claims.

Communication between the two militaries had also lapsed in recent years, with Beijing saying that an emergency hotline gave the U.S. cover to engage in provocative military operations in China’s backyard.

The resumption of high-level military exchanges between the U.S. and China dovetails with broader efforts by both governments to step up dialogue over contentious issues such as trade and technological competition.

Analysts say both Washington and Beijing welcome the calming of tensions while each grapples with other priorities—with the U.S. preoccupied with the wars in Ukraine and Gaza, while China struggles with tepid economic growth and corruption in its military ranks.

Dong stressed that Beijing’s willingness to engage the U.S. wasn’t an invitation to undermine Chinese interests.

The Chinese defense minister devoted substantive passages of his Sunday speech to expounding on Beijing’s grievances against Washington, including American political and military cooperation with Taiwan and the Philippines, though in these instances, Dong avoided directly naming the U.S.

Describing the Taiwan issue as “the most core of China’s core interests,” Dong criticized “external interfering forces” for providing diplomatic support to Taipei and selling arms to the island. He said such maneuvers were designed to embolden Taiwanese independence elements and “use Taiwan to contain China.”

Dong also blamed “external forces” for instigating China’s recent spat with the Philippines over Second Thomas Shoal, a disputed reef in the South China Sea, and denounced the recent deployment of a new U.S. missile system in the Philippines during joint military drills.

In recent months, Chinese vessels have become increasingly aggressive in disrupting missions to supply a military detachment that the Philippines keeps stationed on Second Thomas Shoal, which Beijing refers to as Ren’ai Jiao. The U.S. has repeatedly warned that an “armed attack” on Philippine vessels would invoke their mutual defense pact.

Offering an apparent response to Philippines President Ferdinand Marcos Jr., who on Friday condemned what he called “illegal, coercive, aggressive” actions against his country’s sovereignty, Dong restated China’s claim that the Philippines provoked the standoff by reneging on an agreement with Beijing over resupply missions to Second Thomas Shoal.

The minister defended Chinese activities around the reef as lawful and appropriate, and urged relevant countries to desist and defuse the dispute through dialogue.

“The Chinese side has exercised sufficient restraint in the face of the provocations,” Dong said. “But there are limits to this.”

The Chinese defense minister nodded to concerns in the U.S. and Europe about Beijing’s support for Russia’s war efforts in Ukraine.

Dong said China isn’t selling weapons to either side of the Ukraine war. He nodded to Beijing’s recent tightening of export controls on goods with potential military applications in portraying China as an agent of peace.

Dong’s speech capped the Chinese delegation’s forward-leaning messaging at the three-day dialogue. Chinese military officials posed pointed questions to speakers who criticized Beijing, while amplifying their own government’s stances on security matters and regional disputes.

Chinese delegates also convened a series of media briefings on the sidelines, where they employed strident rhetoric against the U.S., accusing Washington of stoking discord in the Asia-Pacific, meddling in regional disputes and corralling allies and partners to suppress China.

Soon after Marcos’s speech on Friday evening, one Chinese general arranged a late-night briefing to deliver a point-by-point rebuttal to the Philippine president’s remarks on maritime tensions and perceived infringements of Philippine sovereignty. Another Chinese general held a similar briefing on Saturday to criticize what he called U.S. efforts to forge military alliances to check China and uphold American hegemony.

At the same time, the Chinese delegation also tried to emphasize Beijing’s desire for dialogue—as long as China’s bottom lines, particularly its sovereignty claims over Taiwan and the South China Sea, weren’t breached.

In a Friday briefing, a Chinese Defense Ministry spokesman characterized Austin and Dong’s meeting as “positive, practical and constructive,” and a valuable face-to-face interaction between senior officials. When a reporter asked about the main points of disagreement during the meeting, the spokesman countered: “Your question is quite negative.”

Some participants at the dialogue sensed that Beijing was eager to avoid unnecessarily aggravating tensions and fueling anti-China sentiment in Washington, which could intensify in the run-up to the U.S. presidential elections. “It’s quite clear that they want to keep things calm ahead of November,” said an Asian diplomat who attended the dialogue.

One delegate picked up on the milder atmospherics between the U.S. and China, and asked Austin about it after his Saturday speech.

With China, “we want a relationship that’s based upon competition, and not a contentious relationship,” Austin replied. “A fight with China is neither imminent, in my view, or unavoidable.”

Senior Col. Zhang Chi, an associate professor at China’s National Defense University, noted that Austin’s speech at this year’s dialogue marked an “obvious improvement” from his 2023 remarks, where the defense secretary had name-checked China several times and “hyped up” sensitive issues around Taiwan and the South China Sea.

“You can interpret this as a show of goodwill, and you can also interpret it as a reflection of objective reality,” Zhang said in an interview, characterizing the milder tone as reflective of efforts by both militaries to “stop the decline and stabilize” their relationship.

Anglo chief admits selling De Beers is biggest challenge

Miner has pledged to dispose of or list world’s biggest diamond business even as market remains weak

Anglo American chief executive Duncan Wanblad has admitted that selling the diamond business De Beers will be the hardest part of a radical restructuring the miner must deliver after rejecting a £39bn takeover bid from rival BHP.

A promise to dispose of De Beers, the world’s biggest diamond business, is part of a plan that amounts to breaking up Anglo that Wanblad pitched to shareholders as a superior alternative to selling the company to BHP.

Other elements include demerging its Johannesburg-listed Anglo American Platinum business, selling its metallurgical coal business in Australia and shuttering or offloading its nickel mines in Brazil. That would leave Anglo as a leaner business focused on copper, iron ore and fertiliser.

Wanblad said he was “undaunted” by the challenge of exiting four businesses in 18 months but stressed that securing a buyer or a listing for De Beers would be the most challenging.

“It is the one that is real bottom of cycle,” he told the Financial Times, referring to the slump in natural diamond prices that has already forced De Beers to cut this year’s production targets. “That [process] is going to take the longest.”

The 107-year-old Anglo had been working out how to streamline the sprawling business for several months but was forced to fast-track the strategy after BHP made its takeover approach in April.

BHP eventually dropped its six-week pursuit on Wednesday in the face of resolute opposition from Anglo’s board, leaving Wanblad under pressure to deliver on what he has promised.

Wanbald said Anglo would run the four transactions and restructuring in parallel, adding he had “great confidence” in Anglo’s ability to execute. “Investors are going to see continuous focus on delivery until we get it done in the next 18 to 24 months,” he said.

The 57-year-old South African added that he was fully committed to each disposal and would not change course, even if commodity markets shifted in favour of one of the businesses he has promised to exit. “That’s where I’m headed and I’m going to be undaunted in terms of getting from here to there,” he said. 

Under Mark Cutifani, Wanblad’s predecessor, Anglo unveiled a similar radical plan in 2016 as Anglo faced a debt crunch but some asset sales such as Kumba Iron Ore were abandoned as performance improved.

Analysts have said that selling De Beers will be complicated by the rise of lab-grown diamonds and its ties to the government in Botswana, where it sourced almost 80 per cent of its stones last year. 

Based on valuation estimates by Wood Mackenzie, a consultancy, De Beers would account for almost half of the $25bn that Anglo could secure from the sales. Its current value on Anglo’s balance sheet is $7.3bn.

“If they try to run a sales process, I think there will be limited interest. At this stage, an IPO or listing feels more likely,” said Rob Wake-Walker, a consultant at WWW International Diamond Consultants. “People will find it an incredibly complex and difficult deal to proceed with. If you’re not experienced in having a government partner, it’s a difficult one.”

De Beers is yet to finalise a 10-year sales agreement with the Botswana government which owns 15 per cent of the diamond miner. Wanblad said that he hoped an agreement would be finalised within the next few months, saying that it had not been derailed by the BHP takeover battle. On Friday, Al Cook, the new boss of De Beers, set out plans to streamline the business.