PitchBook News - What next for PE and tech?

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The Research Pitch

May 28, 2022

Last call: On Tuesday, our analysts will host a free webinar discussing all things foodtech, including the rise of delivery apps, changing consumer preferences, and sustainability concerns. Register here.

What next for PE? Deal activity will slow (not stop) and hold times will grow

The list of negative near-term risks to the global economy is now well-known:

the war in Ukraine
supply chain disruptions
a tight labor market
persistently high inflation
central bank tightening
the enduring impacts of the pandemic

In an ordinary market, any one of these items could reduce global growth.

But these are extraordinary times where global growth is trending down, volatility is high and rising, and monetary policy is compellingly tighter.

Sponsors are asking how all of this, and more, will affect their current and prospective PE investments.

We address those concerns in our newest research.

Carveouts, take-privates, and PIPE deals could become popular.

PE deal activity will slow but not stop.

Despite higher financing costs and lower public comps creating a more challenged dealmaking environment, sponsors are sitting on more than $1 trillion in dry powder and are highly incentivized to deploy it.

Though, the current high inflation and rising interest rate regime will be broadly negative for PE fund performance and portfolio company valuations.

Higher discount rates put downward pressure on all risk assets in PE portfolios, especially high-growth technology companies. We have already seen this ring true in Q1 2022 fund returns.

PE firms will also have to shift the types of companies in which they invest.

Having deep subsector expertise and forecasting where disruption will come from in a particular sector has never been more important.

Companies able to successfully pass on inflationary costs will command a premium. Additionally, with sharp declines in liquid markets, take-privates present a huge opportunity.

Continuing an ongoing series that reacts to the new macro environment, our latest research explores how the volatility is impacting private equity.

Download it here: How PE Firms Will Navigate Today's Complex Macro Environment

Feel free to reach out with any questions or comments.

Enjoy!

Dominick Mondesir
Senior Analyst, EMEA Private Capital

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Emerging Tech Research

Emerging Tech Braces for Impact

How is today's market turmoil affecting 11 key technology verticals?

Our entire Emerging Tech Research team contributed to this analysis of how changes in valuations, capital supply, and broader market conditions will impact each of our coverage areas.

A few highlights:

Weaker blockchain, crypto, and NFT projects will be flushed out.

Biofertilizers, field robotics, and indoor farming tech will be essential in agtech.

AI-aided software development, aka Software 2.0, will be accelerated.

Climate tech winners will include lithium mining service providers and new Western battery companies.

From supply chain tech to information security, fintech to foodtech and beyond, there are many more insights in the full collaboration:

read the free research

Crypto did it again.

For the third consecutive quarter, Web3 & DeFi represented the largest area of investment in our Emerging Tech Indicator dataset—which tracks seed and early-stage investment from a subset of top performing VCs.

Other notable tech categories include biotech, fintech, enterprise SaaS, and foodtech. We also recorded several startups building products and services aimed at the emerging "metaverse" opportunity as a part of their branding.

There's more data and analysis in the full report, including when we expect to see the trickle-down impact of declining public market valuations:

read the free research

Venture investors have been losing their appetite for foodtech as the broader market recalibrates.

Both VC deal count and value dropped in Q1. Exit activity has slowed tremendously.

Our new research takes a wide look across the vertical, as we expect the effects of market volatility to resonate throughout the year. It's loaded with charts, tables, and illustrations that give you a 360-degree view of what's happening within foodtech.

We also identified a couple of emerging investment opportunities—continuous glucose monitors that provide insight into personalized nutrition and 3D food printers that could produce your next steak:

read an executive summary

Market Updates

Private market fund managers may have pushed LPs to their limits, as combined Q1 fundraising across all strategies fell below 2021's pace.

GPs have been attempting to raise larger funds more quickly than ever. And if LP allocations can't keep up, managers may need to find other sources of capital.

Our Private Fund Strategies Report breaks down key fundraising, cash flow, and dry powder metrics across PE, VC, real estate, real assets, private debt, funds of funds, and secondaries.

We also put the spotlight on emerging managers—as VC, in particular, continues to see growth in GPs with three or fewer funds:

read the free report

Thematic Research

The Russia-Ukraine War's Impact on the European VC Ecosystem

Russia's invasion of Ukraine has directly affected tens of millions of lives, sparking a humanitarian crisis.

Many knock-on effects have been felt worldwide, whether in shocks to supply chains, trade, and energy—or finance, tech, and venture capital.

While Europe's VC activity has typically concentrated in Western nations, investment in Central and Eastern Europe has also grown over the past several years.

In our analyst note, we discuss the impact of the war on European VC, focusing on people, evolving sectors, and regional considerations:

read the free research

Webinars & Events

We hosted a webinar this week focused on private equity and the European insurance sector.

But acknowledging what has been happening in public markets recently is unavoidable, so we also spent time addressing the impacts of the current macroeconomic environment on the PE industry.

If you missed it, you can still watch the free replay.

June 7: Senior analysts from across our team will discuss the broader macro backdrop, how it has influenced the recent volatility and sell-off in public equity markets, and what it means for private markets. Register here.

June 8: Our VC analysts will discuss how valuations are faring in 2022, as investors and companies face a uniquely opaque future in the private markets. Register here.

Commentary

Head of emerging tech research Paul Condra weighs in on Broadcom's $61 billion acquisition of VMware and what it could signal about the market:

"VMware is an enterprise software infrastructure company known for its 'virtualization' software, but it has been transitioning to provide more cloud-based software and services in part via acquisitions.

"Broadcom is primarily a maker of semiconductors with some enterprise software infrastructure revenue.

"While the product synergies supporting this combination are unclear, VMware would provide Broadcom with a mature profit-generating business and expand its enterprise software exposure.

"Aside from the business rationale, the deal is notable in that it signals a potential floor is forming in the current market selloff.

"Large acquisitions in a down market can fuel more bullish sentiment and could signal more big deals are to come.

"While the selloff in VMware has not been as severe as it has been for lower-margin, high-growth SaaS providers, Broadcom's offer is still likely to be considerably less than it would have had to pay prior to the selloff."

Paul Condra

Head of Emerging Technology Research

In the News

Our insights and data featured in the press:

Only about 1% to 2% of the estimated $80 trillion held by individual investors worldwide is allocated to alternative investments. [WSJ]

More money has been raised for crypto funds than crypto companies in 2022. "How are you going to deploy that much capital at a measured valuation?" [Axios Pro]

Foodtech investment fell 40% in Q1: "This reversal may be the first step in a larger market recalibration." [Bloomberg]

Affirm's delinquencies rose to 6.3% in the first quarter of this year—up from 4% in the second quarter of 2021. [Fortune]

If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.

ICYMI

Highlights from our other recent research:

Market updates

Thematic research

Emerging Technology Research

Coming next week (subject to change)

Global Markets Snapshot: May
France & Benelux Private Capital Breakdown (sneak peek)
First-Time Funds in a Crisis
ETR: AI & Machine Learning
More reaction to the new macro environment

Thanks for reading! Feel free to email us any time with feedback, questions, or tips!

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The Research Pitch

PitchBook News - What next for PE and tech?

Key phrases

Older messages

The Russia-Ukraine war's impact on VC

Fund sizes push LPs to their limits

Checking in on emerging tech

A primer on private markets real estate

VCs pull back from foodtech

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