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The Daily Pitch: VC

May 30, 2022

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

How market turmoil is affecting key emerging technologies

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The potential for a recession, driven by recent financial and economic turmoil, will spur investors to reduce risk across their portfolios.

Higher interest rates offer attractive alternatives to riskier bets and undermine the TINA (There Is No Alternative) mindset that has propelled capital into the riskier corners of the market for much of the past decade.

Higher hurdle rates and less leverage are weakening valuations. Pressure to grow at all costs will be met with a drive toward profitability for VCs and startups. At PitchBook, we expect the focus to narrow toward startups that have technology with a durable competitive advantage. Perkin's Law—solve a tough technical problem to minimize market risk—will likely be the law of the land once more.

A downturn would stem in part from a number of supply shocks across the globe: crippled supply chains from the response to the COVID-19 pandemic and resulting volatile patterns of demand, as well as pinched energy, food and key raw materials due to war in Ukraine.

The crimping of supply coupled with decades of easy money policies globally (and massive largesse in response to the pandemic) ignited inflation rates that much of the developed world hasn't seen in nearly half a century. Hopefully, a slowdown won't revive that other malady of half a century ago: stagflation.

The response to these supply shocks could reorient trade and consumption patterns and alter global trade permanently. Startups that help resolve these problems or have technology that hastens the transitions stand to gain.

Our Emerging Tech analyst team examined how the current market and economic disruptions are affecting pivotal areas of tech we track.

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New products to help employees get equity

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News of a big round of layoffs this past week at Bolt Financial takes on added importance in light of founder Ryan Breslow's recent high-profile initiative to finance Bolt employees' purchase of vested stock options. Exercising options and paying the associated taxes is expensive for most workers. As Marina Temkin reports, some startups and VC firms structured as private funds have started offering employees of promising tech companies a loan-like product for purchasing stock options.

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Down rounds, yes, but also more investor-friendly terms

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Should investors expect to see a surge of down rounds? Based on the most recent PitchBook data, the number of VC deals at a valuation lower than their previous rounds remains fairly small The rate of down rounds seems likely to increase as VC firms get more tight-fisted. But as Priyamvada Mathur reports, some deals will still fetch higher valuations, albeit under more stringent terms, as investors gain leverage to demand downside protections.

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Private equity's suddenly barren exit landscape

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Last year's deluge has been replaced by a drought when it comes to exits for private equity-backed companies. Exit value in Q1 was off 57% versus the previous quarter, PitchBook data shows. Breaking down the numbers, Madeline Shi puts the IPO and M&A landscape into perspective and explains how it's affecting dealmaking and valuations.

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For SoftBank (and VC), the end of a VC era

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In recent years, SoftBank has been something of a totem for venture capital largesse. But as Andrew Woodman writes, we are witnessing a watershed moment for the company and the larger VC market, as SoftBank adopts a more conservative investment stance in the wake of its Vision Funds racking up a $27 billion loss for its latest fiscal year.

Plus: PitchBook's exclusive SoftBank Vision Fund dashboard tracks the funds' performance.

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How the NFT market can hit the reset button

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The market exuberance that powered the boom in non-fungible tokens has given way to more cynical conditions, forcing a largely speculative market to confront reality. Critics of NFTs will interpret this downturn as the beginning of the end for NFT projects, which have been characterized largely by over-promises, rug-pull scams and flash over substance. But according to PitchBook analyst Ryan Vaswani, this period is more likely to refocus entrepreneurs on bringing clear value to digital assets.

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Volatility, inflation and the outlook for private markets

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The Federal Reserve is raising interest rates to tame rising inflation, driving stock markets lower. The Fed's moves, along with supply chain constraints and geopolitical events, are pushing down valuations and causing a rotation away from riskier assets. PitchBook analyst Andrew Akers examines the most likely recession scenarios and their implications for private market investors.

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Crypto startups upend corporate VC rules

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Crypto distorts everything it touches, so it should come as no surprise that crypto corporate venture capital arms are upending norms. These startups-turned-investors back rivals and underwrite bailouts—and some make a fortune doing so. As James Thorne writes, crypto startups may simply be borrowing from the "coopetition" approach as they seek to prove that the blockchain experiment isn't just a solution in search of a problem.

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PitchBook News - Emerging tech braces for impact

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