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All roads lead to recession? Our new research breaks down recent economic and public market developments that have shaped the outlook for the US private markets, laying out the key risks, opportunities, and potential roads forward. Read it here.
Crypto's crucible: As negative headlines swirl and VC dealmaking drops, our latest Crypto Report examines the year to come for the industry and how 2023 could represent a policy inflection point. Read a free preview. |
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From IP to IPO: Patent data and VC outcomes
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How do you convince someone to give you a check for $10 million?
Many founders wrestle with this very question, often when their startup has yet to generate any revenue or even launch a product. VCs frequently must rely on signals other than financial results to assess the prospects of a potential investment.
One such signal is the presence of a patent portfolio, our new research shows.
Among the most interesting takeaways is that, upon reaching an exit, patent-seeking startups do so via the public markets an incredible 23.2% of the time. This is in stark contrast to companies that have not sought patents, where only 4% of exits occur via public listing.
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| Average exit size for patent-seekers is also 2.1x larger. |
This fact should be heartening to investors, as public market exits tend to be significantly larger than acquisitions. Additionally, both exit channels fetch higher values for patent-seekers, with average exit values 2.1x larger in each category from 2011-2022.
We also find that throughout the funding lifecycle, startups seeking patents fetch larger check sizes—and at higher valuations—than their peers at every stage, thus making the outsized exits more necessary.
This indicates that VCs may consider a company's IP portfolio as a positive input in investment decisions. However, causality is hard to establish as there may be other signals investors are keying into that tend to coincide with the presence of patent-seeking activities.
Our new research leverages PitchBook's patent dataset, which consists of more than 46 million patent application and grant documents across many jurisdictions. While this is the first time that we have published this data, we will continue to utilize it in future analysis, as it provides a unique lens through which we can examine private markets.
Download the free research: Introducing PitchBook Patent Research
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Best,
Andy White
Lead Quantitative Research Analyst |
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Expect continued pressure on later-stage VC-backed companies
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Despite bullish expectations stemming from record public and private market performance in 2021, last year was broadly characterized by substantial economic decline brought about by factors such as rising interest rates and geopolitical conflict.
Recessionary fears continue to linger in the minds of many, as the S&P 500 recorded its worst year since the global financial crisis amid massive markdowns to public valuations.
As investors have shifted away from placing sky-high premiums on revenue growth as a leading indicator of value, many private startups have suffered, particularly those in the later stages of the venture lifecycle who look to similar public companies as proxies.
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| The withdrawal of nontraditional investors has been a big factor. |
In Q4, median pre-money valuations for venture growth-stage businesses plunged to $132 million—the lowest since Q1 2020. Much of this decline was driven not only by worsening public market valuations but also the inability of these companies to go public themselves.
In stark contrast to 2021, last year's lifeless IPO market severely impacted capital deployment and investor sentiment at the late stage, where return potential relies heavily on public market listings.
The declining risk/return profile is especially concerning for nontraditional investors, who are typically the first to pull away from riskier asset classes such as VC amid deteriorating market conditions. As expected, we observed a strategy shift from this pool of investors throughout the year, with annual median pre-money valuations falling 13% and 22%, respectively, for late-stage and growth-stage deals involving nontraditional investors.
Given the uncertainty of whether market conditions will grow more perilous, we expect valuations for later-stage businesses to fall further in 2023.
On a more positive note, valuations of angel- and seed-stage businesses—insulated by their nascency and benefiting from ample amounts of dry powder—increased to record levels in 2022, highlighting that not all stages of VC are affected equally.
Regardless, 2023 will be a challenging year for all venture stakeholders. Founders, investors, and other participants will surely look to shift strategies and expectations as they head into a turbulent new year, and though predicting the future is impossible, it doesn't mean that many won't try.
Until we know exactly what the future holds, check out more data and analysis in our 2022 Annual US VC Valuations Report.
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An expanding US economy in H2 2022 was met with geopolitical strife, hawkish central banks, and a growth hangover, to say the least. But alternative asset investing churned on.
Through the tumult of last year, private market AUM dipped, according to PitchBook projections.
Our latest Quantitative Perspectives, with 70-plus pages of insights into the US private markets, uses our capital recycling framework to predict where that growth will lead in the short and long term.
Report highlights include a forecast for private market AUM in 2023, new outputs from our quantitative recession model, and levels of venture capital supply and demand: |
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While 2022 was the second-best year on record for PE investment in healthcare services, dealmaking declined throughout the year and rounded out Q4 at pre-pandemic levels.
Is a rebound on the horizon? We don't expect one quite yet.
The staffing crunch, liquidity constraints, and a rocky fundraising market will likely continue to drag deal count down in the first half of 2023.
Our new Healthcare Services Report breaks down recent PE trends and key regulatory developments, while also spotlighting opportunities in rheumatology, value-based care enablers, and Medicaid/CHIP pediatric dentistry: |
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Agtech had a difficult harvest in 2022—down 13.2% year-over-year in total VC raised—despite a boom over the past few years.
Volatile markets and rising interest rates put a damper on the segment, as exit activity fell 93% on an annual basis.
So what's in store for this year?
Our latest Agtech Report explores recent deals and developments in the space, and also highlights emerging opportunities in biotech plant breeding and energy-saving CEA components: |
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Talking primary care: We hosted a live conversation with senior strategists from Optum to discuss how PE firms can navigate a growing and extremely competitive Medicare Advantage market. Watch the replay.
US VC trends: We also held our quarterly Venture Monitor webinar to discuss the most pressing topics across the industry, like where VC investors are finding pockets of opportunity in a tough market. Watch the replay. |
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Senior tech analyst Brendan Burke weighs in on the report that Google has invested $300 million in OpenAI competitor Anthropic:
"This deal signals that the future of AI will be driven by startup research labs aggregating talent to innovate in algorithm quality.
"Google's internal language modeling innovation has lagged behind Meta and OpenAI and the company has already leaned on startup partnerships with Cohere and other startups via CVC deals after the company's acquisition of Deepmind in 2014.
"Anthropic is developing a competitive foundation model to OpenAI's GPT-3 and already surpasses all non-OpenAI foundation models in question answering accuracy, according to Stanford researchers' benchmarks.
"We believe the company is valued at around $5 billion, granting a similar valuation per employee to OpenAI and Cohere.
"We expect startup research labs to pursue partnerships rather than acquisitions with tech giants to limit liability and support basic research. Several of these labs may become independently large public companies."
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Brendan Burke
Senior Emerging Technology Analyst
AI & Machine Learning |
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Our insights and data featured in the press:
- An alarming shortage of healthcare workers and rising wages are set to slow PE dealmaking in the sector. [Institutional Investor]
- Climate tech VC deals stall in January. [Axios Pro]
- "Capital is now concentrated into [crypto] areas with business models and product market fit. There is also less appetite for pure token rounds." [CoinDesk]
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
Industry & tech research
Coming next week (subject to change)
- European VC Valuations Report
- ETR: Supply Chain Tech
- ETR: Carbon & Emissions Tech
- Capital concentration and its effect on the venture ecosystem
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A message from Auctus Search Partners LLC (ASP)
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The search firm for all banking, PE, finance & tech talent
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ASP is a comprehensive search firm with a breadth of talent solutions for PE, portfolio companies, and private and public corporations.
Digital and technology transformation challenges, M&A complexity, and ineffective succession planning lead to missed growth targets. To prevent that, here are key steps:
- Target select talent to address needs and skill gaps
- Focus on value creation and growth
- Help clients accelerate business results
- Deliver high ROI from every search
To realize those goals, ASP helps build a deep bench of top talent with the right acumen, ready to solve challenges and create value.
ASP’s key details:
- 100+ years industry and business experience in IB, PE, finance, and tech
- Deep bench of top talent
- Extensive network
Learn more |
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Since yesterday, the PitchBook Platform added:
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14
VC valuations
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1969
People
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560
Companies
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32
Funds
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