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State of the private markets: In case you missed them, we released our flagship US PE and VC reports earlier this month.
They combine to feature 66 pages of data and analysis, helping you understand the trends of 2022 and also what to expect in the coming year:
Come to IA40: We're co-sponsoring and participating in the Intelligent Applications Summit 2022 in Seattle this upcoming Wednesday. To learn more about the event and request an invitation, click here. |
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A shifting market cycle is putting pressure on the future of SPACs
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As we move deeper into Q4, it's become increasingly clear that the flood of SPAC activity in 2020 and 2021 has diminished to a trickle.
At the beginning of it all, the new wave of blank-check vehicles had been touted as a creative solution to the dwindling number of publicly traded corporations and as a way to potentially disrupt the traditional IPO process.
But a distinct change in investor sentiment was followed by a swift change in the economic outlook.
Earlier this year, there were a number of signs that SPACs were falling out of favor with both institutional investors and private companies, as deSPAC activity saw a major slowdown in Q1.
The sharply negative market performance of newly listed companies has only worsened throughout Q3 and seems to be the final nail in the coffin for this most recent SPAC experiment.
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| Valuation pressure has led to several canceled deSPAC deals. |
Of course, a significant portion of this can be attributed to the bias of SPACs in 2021 to pursue deals with younger, high-growth businesses, which have been revalued swiftly in the wake of the rising-interest-rate environment in response to persistent inflation.
Approximately 700 SPACs have raised an IPO but are yet to close a reverse merger, meaning we should still see some activity over the next quarter or two. But it's likely to be relatively subdued given the outlook for any kind of public listings.
There has already been an uptick in SPACs winding down and returning money to investors without completing a business combination—even a high-profile name like Social Capital recently announced two of its SPACs would be returning capital as they ran up against the end of their allotted time.
Hindsight always makes many things clearer, but it seems that this recent SPAC boom had a lot more to do with an attractive bull market in growth businesses rather than a fundamental improvement of the public listing process.
For more data and analysis, download our free Q3 SPAC Market Update.
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Trick or treat? SEC regulations for PE and VC fundraising come knocking
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After two years of preparation, new regulations go into effect on November 4 that change the way private equity and venture capital managers go about marketing new funds.
Rule 206(4)-1 was the SEC's first antifraud rule governing the activities of investment advisers (IA) and it is being replaced by the merger of two rules—the "Advertising Rule" and the "Solicitation Rule"—to create a single "Marketing Rule."
This is the first substantive change to this rule set in over 60 years and it aims to adapt to the evolving marketing practices and technologies used by the asset management industry.
Among the more modernized elements of the new rule are its acceptance of third-party ratings, its guidance on the use of social media, its framework for performance advertising, and its contained approach relative to pre-approvals of marketing content.
However, there is a raft of new requirements that have IA compliance officers working overtime to overhaul policies and procedures and retrain marketing and advisory staff ahead of the effective date.
Notable among them, especially for PE and VC firms, is the requirement to present net performance returns any time gross returns are given, and to do so on a 1-, 5- and 10-year basis.
Another is the requirement to provide proper disclosures on testimonials, endorsements, and third-party ratings that are included in marketing materials, as well as other principles designed to safeguard against misleading marketing practices in general.
There is also a high sensitivity around the use of hypotheticals, which in certain scenarios may trigger one-on-one communication to be considered an "advertisement."
With so many investors having hit their targeted allocation to PE and VC funds on the year, these new rules are hitting at a time when most of the industry is already struggling to raise funds going into Q4. PitchBook data shows that fundraising in Q3 was well off the pace of Q1 2022.
Meanwhile, the 35 VC funds that raised $1 billion or more accounted for 60.3% of total capital raised so far this year, up from just 34.4% last year. The top 35 PE funds accounted for 66.9% of total capital raised this year.
The new Marketing Rule will fall hardest on smaller sponsors with smaller compliance departments already struggling to keep up with their larger VC and PE brethren and fundraising machines.
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Global M&A activity that had ratcheted up to record highs at the end of 2021, and then dropped in the new year, fell further last quarter—down 29.8% from the Q4 2021 peak.
Climbing inflation, rising interest rates, tumbling tech and healthcare stocks, and a weaker euro all worked to drag down dealmaking, according to our Q3 Global M&A Report:
- Public companies' trading multiples have plummeted from a median multiple of 3.3x revenue in 2021 to 2.3x at the end of Q3, while M&A deal multiples have held firm at 2x during the same span.
- Private equity and corporate buyers alike snapped up business products and services companies at higher rates, as 17 deals of $1 billion or more closed in Q3.
- The COVID-19 pandemic's lingering effects on the labor force dragged on the healthcare industry's pace of M&A, which typically fares well in recessionary times.
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European private equity dealmaking defied myriad economic headwinds in Q3.
Deal count finished the quarter up 16.9% compared with the same period a year ago, while aggregate deal value remained flat.
Our Q3 2022 European PE Breakdown explores how the industry is dealing with the new normal of higher interest rates and inflation:
- Take-privates and carveouts continue to be major themes for the year due to currency devaluations and lower public market valuations.
- Average PE deal sizes have trended upward, reaching €289.1 million in Q3.
- Exit activity is expected to fall short of last year's highs and fundraising is on pace for its lowest total in a decade.
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Investors Have Put 'Bad Blood' from Theranos in the Past
Theranos' downfall struck many as a swift end to the promise of blood-based testing, but researchers and startups haven't given up on its future.
While it may take time for liquid biopsies to reach their full market potential, these diagnostic blood tests—which can be an accessible alternative to more invasive tissue biopsies—are here to stay.
PitchBook and Morningstar analysts estimate the global addressable market for liquid biopsies could exceed $100 billion in the long term, as the tests become commonplace in annual physicals and replace existing cancer screening methods.
Our research dives into the VC landscape for blood-based testing and unpacks the main challenges to widespread liquid biopsy adoption: |
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How has ESG become more polarized and politicized?
Where are GPs focusing most of their sustainable investing efforts?
What are the biggest issues for institutional investors and allocators?
Our analysts went over the key findings from our Sustainable Investment Survey this week, which garnered responses from around the globe: watch the recording
One event to add to your calendar:
- Nov. 8—Our latest Venture Monitor webinar, presented in sponsorship with Insperity and J.P. Morgan, will cover the US VC market's current trajectory, key trends to watch, and what to expect in the future. Register here.
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Our insights and data featured in the press:
- Despite Mobileye's strong debut, it could be a while before we see a full revival of the IPO market. [FT]
- A16z backed 56 US-based crypto deals last year and was the second-largest crypto funder in terms of investment volume. [WSJ]
- Why median US VC valuations actually make sense. [TechCrunch+]
- The average cost of high-yield bonds issued in October surges to over 11%. [Axios]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. |
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Highlights from our other recent research:
Market updates
Thematic research
Emerging Technology Research
Coming next week (subject to change)
- Global Markets Snapshot: October
- European Venture Report
- 2022 All-In Report
- ETR: Information Security
- ETR: Mobility Tech
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A message from Aptera Solar Electric Vehicles
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The future of mobility is solar
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Gasoline prices are up 39.5%. The sun is still free. Aptera is making a solar electric vehicle with a 1,000-mile range per charge and a range of up to 40 miles per day free from the sun. With a less prohibitive price point and freedom from electric chargers, you can join Aptera in making life off the grid a reality for everyone.
Learn more |
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Since yesterday, the PitchBook Platform added:
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14
VC valuations
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1793
People
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534
Companies
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17
Funds
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