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PitchBook News - Is Israel's tech hub status at risk?

Plus: A mega-fund nosedive, the search for fundamental value, a VC breakdown & more
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The Weekend Pitch
April 9, 2023
Presented by the U.S. National Science Foundation
(Joey Schaffer/PitchBook News)
A proposed reform by Israel's government that set off nationwide protests has also elicited a rare outcry from a typically apolitical VC community.

While the judicial reform—which, among other things, lets the government override high-court decisions—would have little direct impact on investment, VCs and startups alike fear the fallout could trigger a flight of capital and talent from one of the region's foremost innovation hubs.

Welcome back to The Weekend Pitch, written by Leah Hodgson and Rosie Bradbury. You can reach us at leah.hodgson@pitchbook.com and rosie.bradbury@pitchbook.com, or via Twitter @LeahFHodgson and @_RosieBradbury.

Over the past few decades, Israel has become a startup powerhouse, earning the name "Silicon Wadi." The rise of the country's VC hub was driven in part by favorable government policies such as Project Yozma, an initiative set up in the 1990s in which the government invested in VC funds and startups.

But many business leaders have now become critical of the government, concerned that the reform and uproar will damage confidence in the economy and spook foreign investors.
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A message from the U.S. National Science Foundation  
Invention to impact
Stoke Space Technologies, a Washington-based startup, is on a mission to revolutionize spaceflight by developing high-efficiency, two-stage reusable rockets. Stoke Space Technologies (NSF-2135941) is one of hundreds of deep tech startups funded annually by the U.S. National Science Foundation (NSF), a government agency that plays a central role in accelerating discoveries into the marketplace.

Each startup can receive up to $2 million to support translational research & development. By investing roughly $200 million in startups annually, NSF helps teams navigate the earliest stages of technology translation. In the past five years, these companies have gone on to raise billions in follow-on capital, and the portfolio has had 300+ exits.

Learn more about NSF funding at seedfund.nsf.gov
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Trivia
Our latest analyst note takes a look at the rise and fall of billion-dollar funds in 2022 and expectations for the future. How many US VC vehicles raised $1 billion or more last year?

A) 47
B) 23
C) 12
D) 35

Find your answer at the bottom of The Weekend Pitch!
 

$1B+ mega-funds nose-dive
(jwblinn/Shutterstock)
In the era of billion-dollar mega-funds, would you have guessed the VCs that came out on top? Andreessen Horowitz, Tiger Global, Alpha Wave Global and Chimera Capital alone raked in $46.2 billion in committed capital for behemoth 2022 fund closes.

But one-year horizon performances for all $1 billion or greater funds averaged -4.9% last year. LPs are pulling up the drawbridge. Our latest analyst note, The Transient Era of Billion-Dollar Funds, uncovers early indicators that the mega-fund boom will soon be just a distant memory.
 

European PE and the search for real value
(William Potter/Shutterstock)
The phrase "knowing the price of everything but the value of nothing" hasn't always applied to the world of private equity. For a long time, the value of an asset was determined mainly by price or, more specifically, by comparing the multiple of the amount of money a company brings in to the company's entire worth.

To make money, firms want to sell an asset at a higher multiple than they bought it for. In jargon, that's "multiple expansion." But when competing PE firms have lots of money to spend, good companies will already be trading at a higher multiple than might be justified. So it's harder to make a profit just by multiple expansion—which could be driven by leveraging debt, back when interest rates were low.

Read our analyst note on Exploring European Buyout Multiples to learn more about how firms are now searching for real value and fundamental growth, not just growth by any means available.
 

VC's challenges don't end with SVB
(Elnur/Shutterstock)
Our first slice of Q1 2023 US VC data shows what happens when you have five consecutive quarters of low exit value: The investing cycle breaks down.

The venture market is on pace for the lowest level of fundraising since 2017. Mega-rounds have also become increasingly rare—just 19 VC deals worth $100 million or more were recorded in the last quarter, down from 98 in Q1 2022.
 

Quote/Unquote
(Pincasso/Shutterstock)
"We failed to stem the impact of legacy scandals and counter negative headlines with positive facts."

—Credit Suisse Group Chairman Axel Lehmann on April 4, amid apologies for failing to save the bank. UBS Group agreed in March to buy Credit Suisse for $3.3 billion.
 

Stay tuned
Keep an eye out for these fresh insights and research reports coming out this week.
  • Q1 2023 PitchBook-NVCA Venture Monitor
  • Q1 2023 US PE Breakdown
  • PitchBook Benchmarks (as of Q3 2022)
  • Emerging Space Brief: Hydrogen Storage
 

Recommended Reads
A two-century-old grain trader turns to food science. [Bloomberg]

How climate change is destabilizing the insurance industry. [Scientific American/E&E News]

Houston, we have a problem: Where are the astronauts? [The New York Times]
 

Trivia
Answer: D)

In 2022, 35 funds of $1 billion dollars or more were raised. You can read more about what's in store for mega-funds in our analyst note The Transient Era of Billion-Dollar Funds.

This edition of The Weekend Pitch was written by Leah Hodgson, Rosie Bradbury, David Stevenson, Emily Burleson, Jacob Robbins and James Thorne. It was edited by Andrew Woodman and Ron Prichard.

Were you forwarded The Weekend Pitch? Sign up at pitchbook.com/subscribe.
 
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