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PitchBook News - Startups look for a SAFE haven

Plus: The generative AI era, private markets' winning strategies & more
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The Weekend Pitch
May 7, 2023
Presented by West Monroe
(Jenna O'Malley/PitchBook News)
For some startups, raising capital has become an arduous task, and extending runways is all they can think about. But cutting costs can only go so far before cash in hand is needed. Unfortunately for many startups in the current market, raising money while preserving valuations will not be easy.

Enter SAFE notes.

Created by famed accelerator Y Combinator in 2013, the simple agreement for future equity note was designed for very early-stage startups looking to raise funds. Essentially, investors agree to give capital on the condition that they will receive equity in the future.

Many startups use SAFE notes for early-stage fundraising. In this climate of uncertainty, investors predict its popularity will only grow—and not just at the earliest of stages.

"We're seeing that startups are having more difficulty getting priced rounds done," said Erica Duignan Minnihan, co-founder and general partner of New York firm Reign Ventures. "Since we're in a capital-constrained market, there are going to be more bridge rounds, and I think we'll see more SAFEs come in to fill that."

This is the Weekend Pitch, and I'm Leah Hodgson. You can reach me at leah.hodgson@pitchbook.com or on Twitter @LeahFHodgson.
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A Message From West Monroe  
Private equity's secret weapon
As private equity firms face growing competition for good deals, the pressure is on to unlock value at portfolio companies prior to exit. While digital transformation is a proven value driver, how can firms make impactful improvements in a risk-averse environment?

West Monroe's latest insight provides guidance on moving away from high-cost, high-risk changes to instead focus on digital improvements where ROI will be realized in a shorter timeframe. This insight walks through digital-enabled value creation levers in the following areas: 
  • Revenue growth
  • Cost optimization
  • Talent management
  • Risk mitigation
Check out this new insight
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Trivia
The information security vertical—or infosec for short—has attracted a lot of investor and CIO interest over the past few quarters. Despite a pullback from investors in many verticals, infosec has remained consistent.

In Q1 2023, infosec VC funding reached $2.5 billion, but across how many deals?

A) 43
B) 178
C) 127
D) 71

Find the answer at the bottom of The Weekend Pitch!
 

What the dawn of
generative AI will bring

(slhy/Shutterstock)
It's the question on everyone's minds: What will this new age of innovation driven by generative AI mean for us all, and how will it touch the everyday industries and things we rely on? PitchBook analysts from all areas have shared what this new reality could mean for their respective verticals.

From agtech to ecommerce, to mobility tech to healthcare, generative AI has the potential to be transformative. Our Emerging Tech Future Report: Generative AI lays it all out.
 

The winners and losers of fund performance

Our most recent data shows PE and VC fund performance is lagging behind the stellar returns they'd previously delivered year after year. Meanwhile, real estate and real asset investing have achieved better-than-usual returns.

Private markets are shifting quickly, and our latest Global Fund Performance Report—which includes preliminary Q4 2022 data—lays out which strategies are strutting to the front of the pack and which are falling behind.
 

Survey: AI disruption is here to stay
VC investors don't expect the AI hype to disperse anytime soon. In a survey of 58 investors, 70.7% said it will be very disruptive for the next five years, expecting enterprise technology to feel the most pressure. In the short term, they rate it over other sectors, with 31.6% saying AI technology will have the most innovation over the next 12 months. Climate technology was not a close second, at 20.4%.

The full survey results—with questions on generative AI, the 2022 tech stocks crash, VC valuations and respondents' fundraising plans—can be seen in our recent analyst note.
 

Quote/Unquote
Yie-Hsin Hung, president and CEO of State Street Global Advisors (Patrick T. Fallon/Getty Images)
"This banking turmoil has had the effect of an interest-rate hike—and then some. There is more underneath the surface that is potentially worrying, and investors should be wary moving forward."

—Yie-Hsin Hung, president and CEO of State Street Global Advisors, to a panel at the Milken Institute Global Conference after news broke of JP Morgan Chase's purchase of First Republic Bank.
 

Recommended Reads
Is Temu the future of buying things? Imagine if Amazon and TikTok had a baby. [New York Magazine]

A Twitter look-alike called T2 joins the flock of services offering an alternative to the original. [The Information]

As AI is currently imagined, the technology promises to concentrate wealth and disempower workers. Is an alternative possible? [The New Yorker]
 

Stay tuned
Keep an eye out for these fresh insights and research reports coming out this week.
  • Q1 2023 Retail Fintech Report
  • Q1 2023 US VC Valuations Report
  • Q1 2023 Crypto Report
  • Q1 2023 Healthcare Services Report
 

Trivia
Answer: C)

Infosec funding reached $2.5 billion across 127 deals. You can read more about those deals and the vertical as a whole in our Q1 2023 Infosec Report.

This edition of The Weekend Pitch was written by Leah Hodgson, Jacob Robbins, Emily Burleson and Claire Simpson. It was edited by Andrew Woodman and Laural Hobbes.

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