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Are GPs borrowing trouble with fund tool?

Plus: Those happy crypto days seem so hard to find, weighing effects of inside investors, the near future of ecommerce & more
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The Weekend Pitch
December 11, 2022
Presented by Atlas
(Julia Midkiff/PitchBook News)
With the global economy looking more fragile than it has in a long time, comparisons to past crises are inevitable. The search is already on for the financial villain that will trigger the next market cataclysm. In the 2008 crisis, it was the collateralized debt obligation—a financial instrument essentially used to disguise subprime mortgages as AAA-rated products.

Since then, any financial instrument starting with a "C" and ending with an "O" has been treated with suspicion. It is little wonder then that the recent proliferation of the similar-sounding collateralized fund obligation in the private markets is raising more than a few eyebrows. But is the alarm warranted?

The exotic-sounding CFO may have a superficial resemblance to the justifiably maligned CDO, but it is also different in some important ways, both in terms of the assets that underpin it and the amount of leverage they use. Moreover, CFO usage is comparatively niche.

On the other hand, there are valid concerns—particularly with regard to new types of CFOs being issued by GPs that have not been tested by a downturn. The market for CFOs, as small as it is, is growing while it remains relatively opaque. As a result, it can be hard to measure what kind of systemic risk CFOs present, if any. For these reasons, CFOs warrant closer examination.

I'm Andrew Woodman, and welcome to The Weekend Pitch. You can reach me at andrew.woodman@pitchbook.com or on Twitter @adwoodman.
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A message from Atlas  
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Economic uncertainty may leave you hesitant when it comes to cross-border investments and entering new markets. Deals are complicated, drawn-out, and costly, often requiring an established presence in the market you’re investing in. Does your company have the time, resources, and flexibility to undertake a cross-border investment amid a looming recession?

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Trivia
Healthtech startups have raised more than $26 billion in VC investment across 1,413 deals through Nov. 29, according to PitchBook data. That is below 2021's record. How much has dealmaking fallen by value and deal volume from last year?

 A) 15% by value, 19% by volume.
 B) 57% by value, 73% by volume.
 C) 2% by value, 8% by volume.
 D) 25% by value, 24% by volume.

Find your answer at the bottom of The Weekend Pitch!
 

Crypto in Q3:
'Can't you hear me, SOS?'
(Dragon Claws/Shutterstock)
"Where are those happy days? They seem so hard to find. … Whatever happened to our love?"

That's a line from the lyrics of ABBA's 1975 hit "SOS," but it could also describe the current crypto crisis. It's true that 2022 has been hard on the vertical between the collapse of FTX, the big drop in coin values and the nonstop headlines describing hackings.

But as PitchBook analyst Robert Le points out in our inaugural Crypto Report, the news wasn't all bad in Q3 as long as you know where to look.
 

Inside investors don't always
give future rounds a leg up
Inside investors should be leaders in subsequent financing rounds for startups, right?

Not necessarily. In our latest analyst note, Who Benefits from Insider-led Rounds?, we found that existing investors have "limited and situational" influence on future financing rounds for the startups they back.

In theory, existing investors should be able to attract additional money from their peers. In reality, there's no material return advantage for startups conducting insider-led rounds compared to rounds that aren't insider-led. While existing backers are effective in piquing additional investor interest, curiosity doesn't equate to better valuations.
 

Livestream shopping may come soon to screens near you
(helloabc/Shutterstock)
The ubiquity of social media, with prominent influencers and a blooming creator economy, has primed the US to embrace something that has been common in China in recent years: livestream-based shopping.

This shouldn't sound unfamiliar, as Walmart, TikTok, Instagram and Amazon have tried out the technology. With incumbents experimenting and early-stage venture capital flowing, the potential market for livestream commerce is huge.

This and other promising opportunities of Q3 in the ecommerce market are explored in our recent addition to the Emerging Tech Research report lineup.
 

Quote/Unquote
Joseph Y. Bae (Dia Dipasupil/Getty Images)
"Private capital is much more valuable today than it was last year or five years ago. That’s going to create some really, really interesting buying opportunities."

—Joseph Y. Bae, co-CEO of KKR, in a panel at the 2022 US Financial Services Conference in New York City.
 

Stay tuned
Keep an eye out for these insights and research reports coming out this week.
  • Connected Cars: The Next Ubiquitous Computing Platform

  • H1 2022 Real Assets Report

  • Fortune's Brainstorm AI Conference Paves Generative AI's Path

  • The EU's Russian Gas Problem Can Be Solved: Near-Term Challenges Are Surmountable Over the Long Run

  • Q3 2022 US PE Middle Market Report

  • Q3 Clean Energy Report (coverage launch)

  • Q3 2022 US PE Lending League Tables

  • Impact Funds by Reason and Region
 

Recommended Reads
Investors warm up to wildfire prevention. [ImpactAlpha]

Amazon is hopping into the generative AI craze with a new Alexa feature that creates bedtime stories for kids. [Forbes]

Can crypto survive its latest winter? [The Economist]
 

Trivia
(fizkes/Shutterstock)
Answer: D)

Healthtech dealmaking is 25% below last year's record by value and 24% by volume.

This edition of The Weekend Pitch was written by Andrew Woodman and Chris Noble. It was edited by Chris Noble and Clarinda Simpson.

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