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PitchBook News - The challenge with gen AI investing

Plus: Hope amid VC woes, PE exits still stalled, a deep dive into data with PitchBook Benchmarks & more
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The Weekend Pitch
April 16, 2023
Presented by Masterworks
(Mara Potter/PitchBook News)
As generative AI technology continues to gain traction, established businesses are adopting it at a rapid pace. That has left many startups, which normally lead the tech adoption curve, scrambling to keep up.

Venture capitalists are on a perennial hunt for the next groundbreaking technology. Generative AI may very well be it, and as in any hype cycle, it's easy to back the wrong companies. But for early-stage VCs, investing in AI could turn out to be more challenging than in the previous tech revolutions.

The first major problem for VCs is that incumbents are already pouncing on the technology, either by building their own large language models or spinning up applications built on GPT-4 and its ilk. Boardrooms are buzzing with discussions of whether and how to add generative AI capabilities to their offerings.

"Most of the time, startups' advantage has been they learn new technologies faster. But this time, they're behind," said Tomasz Tunguz, a well-known SaaS blogger and investor who recently left Redpoint Ventures to launch his firm, Theory Ventures.

This is the Weekend Pitch, and I'm Marina Temkin. You can reach me at marina.temkin@pitchbook.com or on Twitter @MTemkin.
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JP Morgan wins $50B in deposits, chance to woo ex-SVB clients

JP Morgan CEO Jamie Dimon on Capitol Hill in 2022
(Drew Angerer/Getty Images)
Deposits at JP Morgan Chase swelled by $50 billion following last month's banking crisis. Now the challenge will be to keep those customers.

The collapse of Silicon Valley Bank has presented the banking giant with an opportunity to capitalize on the turmoil by winning over the VC firms and startups that SVB served. JP Morgan has sought inroads in the tech IPO market, beefing up its ranks with SVB's own leaders to better serve founders and investors earlier in the company life cycle.

"As you would expect, we saw significant new account opening activity and meaningful deposit and money market fund inflows," Jeremy Barnum, CFO of JP Morgan Chase, said at the start of the earnings call on Friday.
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Trivia
In the most recent quarter, median VC valuations fell across all stages EXCEPT:

A) Angel
B) Seed
C) Early-stage
D) Late-stage
E) Venture growth

Find your answer at the bottom of The Weekend Pitch!
 

Some hope amid VC's hard spell

(Shutterstock professional)
Pressure is building on venture capital these days, powered by the high-profile collapse of Silicon Valley Bank and a difficult exit environment brought on by harsh economic headwinds. Deal activity dropped in all stages and sectors during the first quarter of 2023, and the fundraising momentum carried from 2021 into 2022 has evaporated. How do you make sense of it all?

The Q1 2023 PitchBook-NVCA Venture Monitor, sponsored by Insperity, J.P. Morgan and Dentons, tells the complete story behind the data. The outlook, while tough, isn't all pessimistic.
 

PE exits haven't gotten any easier

(Maks_lab/Shutterstock)
In the private equity business, hardly anyone is ever forced to sell. Naturally, drooping company valuations and a shuttered IPO window have dampened the pace of investment exits, and it seems things slowed down even more in Q1. Deal count and cumulative exit value each declined about 14% quarter-over-quarter.

For the 279 deals that were announced in Q1, one group of buyers stood out: corporations. The fresh edition of one of our essential reports, Q1 2023 US PE Breakdown, delves further into the state of PE exits, as well as deals, fundraising and performance.
 

A window into fund performance

(Hurst Photo/Shutterstock)
Private capital's opaque nature prompts many questions on how funds are performing—and a little transparency can go a long way. PitchBook Benchmarks are here to clear things up.

The new edition has been updated through Q3 2022, with preliminary data for Q4. It offers a variety of tools to sort the numbers, opening a window into closed-end fund returns.
 

Quote/Unquote
(T. Schneider/Shutterstock)
"We are going to be a very significant player in venture banking and in the venture ecosystem."

—Chris Reichert, chief executive at Stifel's commercial banking business, on the firm's VC expansion plans.
 

Recommended Reads
What kind of mind does ChatGPT have? [The New Yorker]

The real-world costs of the digital race for bitcoin. [The New York Times]

The lessons from America's astonishing economic record. [The Economist]
 

Stay tuned
Keep an eye out for these fresh insights and research reports coming out this week.
  • Q1 2023 European Venture Report
  • Analyst note: The decline of unicorn acquisitions in a conservative M&A market
  • Q1 2023 European PE Breakdown
  • Analyst note: The evolution of private market secondaries
 

Trivia
Answer: B)

Median seed-stage VC valuations grew while all other stages fell. The unexpected trend likely indicates that investors are becoming more selective and backing the best seed-stage startups—or none at all. Catch up on all the data in the Q1 2023 PitchBook-NVCA Venture Monitor.

This edition of The Weekend Pitch was written by Marina Temkin, Emily Burleson, Jacob Robbins and John Moore. It was edited by James Thorne and Ron Prichard.

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Key phrases

previous tech revolutions first major problem Large language models The Weekend Pitch next groundbreaking technology

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