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PitchBook News - Encryption unlocks startup growth

What VCs want in deals; sports video specialist scores $161M; Magic Spoon scoops up $85M; Kairos Ventures raises $58M fund
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The Daily Pitch: VC
June 14, 2022
The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data
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In today's Daily Pitch, you'll find:
  • Our latest Emerging Tech Research forecasts the commercialization and mainstream adoption of emerging encryption protocols.

  • VC deals that used to be founder-friendly at high prices have been replaced by hallmarks of a downbeat environment, such as decreasing valuations and investor-protective terms.
 
Today's Top Stories  
Encryption innovation driving startup growth
Encryption innovation has historically created large companies, and recent development in modern cloud computing, quantum and AI is likely to yield the same, spawning a new wave of vendors dedicated to securing the internet.

Our latest Emerging Tech Research forecasts the commercialization and mainstream adoption of emerging encryption protocols, highlighting FIDO2 authentication, quantum-safe cryptography and privacy-enhanced computing.

While incumbents are developing products in these spaces, our information security analyst believes startups will ultimately be formed to commercialize the most advanced breakthroughs from academia and as spinoffs from large companies. Key takeaways include:
  • Venture activity in companies commercializing the FIDO2 standard suggests fundamental innovation in public key encryption can produce large companies.

  • FIDO2 tokens and quantum-safe cryptography will likely gain mainstream adoption by 2025, while privacy-enhanced computing may require more time.
read it now
 
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Market turmoil revives VC deal terms that favor investors
(XH4D/Getty Images)
Hallmarks of a downbeat climate, such as decreased valuations and investor-protective terms, are beginning to emerge. Startups in urgent need of capital this year are now saying they are "flexible on price."

"The down-round conversations reflect the end of the 'denial' phase and the beginning of the 'acceptance' phase," according to one investor.

Meanwhile, a very select minority of exceptionally strong companies could attract new capital at slightly higher prices.
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A message from Stout  
In-house portfolio valuations: Is the reward worth the risk?
Performing valuations on Level 3 securities is extremely challenging since there is no market that exists for these assets. And the audit process offers no relief for this extra difficulty and itself includes an exhaustive review of the data, inputs, controls, and judgments that were used.

Conducting portfolio valuations in-house is even more demanding. Asset managers must consider and address significant risks around transparency, resources, the complexity of the audit process, and the bandwidth to meet quarterly reporting requirements. All of this leads to increased scrutiny from all parties involved, and any missteps can result in a negative public perception and diminished investor confidence.

So how can you make sure your portfolio valuation is done correctly? Read now.
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Market correction has come for Series A and seed startups
(DNY59/Getty Images)
After months of relative immunity to market turmoil, Series A and seed deals are starting to feel pricing pressure.

Valuations for best-in-class Series A deals have dropped as much as 58% in recent months, according to Michael Kim, an LP whose firm Cendana Capital invests in dozens of prominent seed funds. Seed-stage startups are likewise seeing valuation declines.

VC firms, including Sequoia, are also starting to demand that companies show more robust revenue before seeking a Series A round.

But pricing for crypto and Web3 deals remains high. "On the crypto side, it's crazy," Kim said.
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How portfolio construction can affect returns for GP stakes funds
GP stakes investors have had a very active year of fundraising, capital development, monetization and more. Alternatives firms are increasingly choosing to sell stakes in their management companies to fund growth initiatives. More GP stakes deals are expected to be on the way, and a weakened stock market could push managers to pursue private financing.

We break down fund portfolio construction by return composition, volatility and more in a recent PitchBook analyst note on GP stakes. Some key takeaways include:
  • GP stakes investment returns vary by the target GP's strategy. Unsurprisingly, a GP's return profile tends to look a lot like the strategy with which it invests.

  • Well-rounded portfolios mix private equity, credit and real assets, as these are likely to perform best through all market conditions.

  • Higher inflation and interest rates are poised to most negatively affect buyout and growth equity managers while providing a tailwind to credit and real assets because of stepped-up LP demand.
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Recommended Reads
Payments giant Stripe is looking to a new frontier for expansion in big enterprise customers. But its push for big businesses isn't without growing pains. [The Information]

A look at how the supply chain crisis is remaking the car industry. [The Economist]

How one VC firm is using machine learning to attract both portfolio companies and investors. [Institutional Investor]
 
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Quick Takes  
  The Daily Benchmark  
  2016 Vintage Global PE Funds  
  A message from Apex Group  
  Fund managers benefit from $3.8m savings with Apex Group  
  VC Deals  
  Pixellot collects $161M in Series D funding  
  Echodyne picks up $135M  
  Capital Rx nabs $106M to tackle drug price distortion  
  Magic Spoon scoops up $85M  
  Cirkul valued at $1B with latest round  
  Submittable secures $47M  
  Alice locks down $30M  
  Tiger Global leads $20M Series A for Bttn  
  Fundraising  
  Kairos Ventures closes Fund III on $58M  
 
 
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The Daily Benchmark  
2016 Vintage Global PE Funds
Median IRR
22.29%
Top Quartile IRR
28.49%
1.64x
Median TVPI
Select top performers
Francisco Agility Fund
Renovus Capital Partners II
Bertram Growth Capital III
*IRR: net of fees
143 Funds in Benchmark »
Check out the latest version of PitchBook Benchmarks
 
A message from Apex Group  
Fund managers benefit from $3.8m savings with Apex Group
Forrester Consulting has recently released its independent study, having interviewed key decision-makers across a number of large Apex Group clients, and the findings in its Total Economic Impact™ study of Apex Group are compelling:
  • Around $5.4m in cost benefits
  • $2.75m Net Present Value over three years
  • 105% return on investment ROI
To find out more about the benefits and savings that Apex Group's single-source solution can provide, download Forrester's Total Economic Impact™ report on Apex Group here.

Apex Group's transformation over the past few years has been driven by the Group's founding vision—to deliver service in a better way, in a way that no one else can.
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VC Deals  
Pixellot collects $161M in Series D funding
Pixellot has raised $161 million in a round led by PSG. The Israeli company is a provider of AI-based sports video production and analytics tech that enables capturing, producing, broadcasting and more.
View round
 
View 6 competitors »
 
Echodyne picks up $135M
Echodyne has raised $135 million in a round co-led by Baillie Gifford and Bill Gates. Based in the Seattle area, the company designs radar technology for use in areas including defense operations, infrastructure protection, unmanned aerial vehicles and autonomous vehicles.
View round
 
View 5 competitors »
 
Capital Rx nabs $106M to tackle drug price distortion
Capital Rx has raised a $106 million Series C led by B Capital. Based in New York, the company is the developer of a cloud-based platform that offers consistent prescription drug pricing and pharmacy tools for patients and healthcare professionals.
View round
 
View 6 competitors »
 
Magic Spoon scoops up $85M
Magic Spoon has raised an $85 million Series B led by HighPost Capital. Founded in 2019, the New York-based company is a manufacturer of high-protein, low-carb cereal. Investors including Shakira, Russell Westbrook and Halsey also participated in the funding.
View round
 
View 1 competitors »
 
Cirkul valued at $1B with latest round
Cirkul has raised a $70 million Series C led by SC Holdings that gives the Tampa, Fla.-based beverage startup a pre-money valuation of $1 billion. Launched in 2018, Cirkul offers reusable water bottles and flavor cartridges.
View round
 
View 2 competitors »
 
Submittable secures $47M
Submittable has raised a $47 million Series C led by Accel-KKR. Based in Montana, the company offers a social impact platform designed to help companies, governments and philanthropic organizations manage programs.
View round
 
View 9 competitors »
 
Alice locks down $30M
Alice Technologies has raised a $30 million Series B led by Vanedge Capital. The company's construction optioneering platform helps contractors plan, bid and build complex infrastructure and commercial projects.
View round
 
View 30 competitors »
 
Tiger Global leads $20M Series A for Bttn
Bttn has raised $20 million in a round led by Tiger Global. Based in Seattle, the company helps medical practitioners, businesses and emergency responders buy medical supplies from manufacturers.
View round
 
View 5 competitors »
 
 
Fundraising  
Kairos Ventures closes Fund III on $58M
Kairos Ventures has collected $58 million for its third flagship vehicle, which has already made 27 investments in companies such as bioengineering specialist Vivodyne and aircraft designer and manufacturer PteroDynamics. Based in Los Angeles, the early-stage firm typically targets startups in the physical and life sciences industries.
View fund
 
View 54 investments »
 
 
Chart of the Day  
Source: PitchBook's Q1 2022 US PE Breakdown
 
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Who's in the newsletter today?
Investors
Accel-KKR
B Capital
Baillie Gifford
Bill Gates
Halsey
HighPost Capital
Kairos Ventures
PSG
Russell Westbrook
SC Holdings
Shakira
Tiger Global
Vanedge Capital
Companies
Alice Technologies
Bttn
Capital Rx
Cirkul
Echodyne
Magic Spoon
Pixellot
PteroDynamics
Submittable
Vivodyne
 
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