PitchBook News - PE's regime change

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The Daily Pitch: VC

June 20, 2022

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

How a new regime could impact the US PE market

Another week of turmoil in the financial markets has laid bare a stark reality: The easy money era is gone, and in its place comes a new and more tightfisted regime with vast implications for the private markets.

Our Q2 2022 Quantitative Perspectives Report delves into the key elements of this new regime and how it could affect the PE market, exploring everything from valuations to recession to inflation risks.

PE dealmaking will be bolstered in the short term by near-record amounts of dry powder and a strong funding market, but investors will face challenges such as rising interest rates and decreased liquidity for exits.

read the report

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The 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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The risks of opening the PE club to the mass affluent

(Joey Schaffer/PitchBook News)

Like an exclusive club, the private equity market can be a hard place to get into. Compared to more accessible areas of finance, it's an investment approach that requires the kind of capital and investment experience that is beyond most individuals.

Traditionally the PE asset class has been the domain of banks, pension funds, endowments and other institutional investors that have the wherewithal and patience to make big-ticket commitments for years at a time. But now another class of investors is making its presence felt: the mass affluent.

It is easier than ever for this group to gain access to PE funds, and vice versa. But as general partners start looking lower down the financial food chain, it's important to ask who benefits from this trend and what impact it will have on existing limited partners and their returns.

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The rise and proliferation of once-rare unicorns

Once a rare beast, billion-dollar startups became commonplace in the easy-money era. More than 580 unicorns were formed in 2021 alone, according to PitchBook data. But the unicorn birth rate has started to decline in 2022 amid a pessimistic economic outlook and a correction in tech stock prices.

PitchBook is tracking the creation of global unicorns by quarter, dating back to the beginning of 2016. Our custom-built charting filters can be used to explore trends in unicorn formation over the years by time period or geography.

see the data

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Down rounds, structured terms make a comeback

(XH4D/Getty Images)

After years of aggressively offering capital to startups with fast growth and high cash burn, VC investors have turned much more selective as the venture market's 13-year bull market comes to a screeching halt.

It is still early days, but VC deals that used to be founder-friendly at high prices have been replaced by hallmarks of a downbeat climate such as decreasing valuations and investor-protective terms.

At the same time, investors are agreeing to stepped-up prices on a few companies that are showing especially strong prospects. But even those startups often increasingly settle for deals with flat or only modest valuation increases, investors said. What kinds of deals are getting done with relatively easy investor demands, and what types are being held to more rigid standards?

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Market Map: A guide to foodtech's VC deal landscape

(Malte Mueller/Getty Images)

VC-backed foodtech startups are battling to redefine a massive and complex sector of the economy, covering production, distribution, delivery, dining and more. And the stakes are greater at a time of surging inflation in food prices along with a pullback in the venture market.

To take measure of the investment landscape across this vast ecosystem, PitchBook's latest Market Map is an interactive data visualization of capital deployment across foodtech companies, with the ability to drill down into PitchBook's proprietary data by various categories inside the industry.

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PitchBook News - PE's regime change

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