New coverage launch! We're excited to announce that we've expanded our tech research coverage into the world of enterprise SaaS. To read a free preview of the premium report, click here.
Which firms led the way? Our Global League Tables are now available for Q1, ranking the most active investors by region, industry, deal type, and more, along with lists for advisers, acquirers, and law firms. See the rankings.
The latest in leveraged finance: Here's a quick recap of some of our trend analysis articles involving leveraged loans and private credit:
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Under pressure…how low can European VC valuations go?
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As macro and micro pressures from last year bleed into 2023, European VC activity has continued to decelerate, with deal value in Q1 declining 65% from Q1 2022.
Some pockets of sequential uptick are emerging, but are these glimmers of recovery or a dead cat bounce? The jury is still out. We think pressures are here to stay, and the picture will remain mixed among stages.
Valuations are no doubt under pressure, with down rounds more prevalent this quarter from a decade-low share of deals in 2022. Higher interest rates across the continent are a key driving force as financing costs heighten and discount factors for benchmarks decrease.
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| Valuations have been squeezed hardest in the later stages. |
As capital availability shrinks, later-stage companies have struggled the most, and they face more challenges when it comes to raising capital and exits. However, previous periods of market stress show such players often have the economies of scale (plus management tenure) to weather downturns.
Amid liquidity constraints, survival not only becomes a question of scale but capital efficiency. The requirement to rationalize cost bases, cash burn rate, and stretch funding runways will be greater for larger companies.
Those with balance sheet firepower will also be best placed to capitalize on depressed asset values through M&A, seen recently in various buy-and-build strategies. Exit activity, therefore, continues to grow toward acquisitions over public listings, with the latter showing little sign of revival.
The overall outlook is uncertain, resulting in a reluctance to deploy capital. The depth and persistence of valuation declines will become clearer as more data is available throughout the year. However, it is a waiting game some parties are cashing out of, as nontraditional investors continue to exit these higher-return but riskier illiquid markets.
With pressures expected to persist through the year, investor attention is likely to turn to core portfolio areas. Key questions remain on how much further a correction to expect and who emerges as winners and losers.
For more on the above, download our free European VC Valuations Report or reach out with any questions.
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Key subsectors look to propel fintech in a more difficult market
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Fintech Nexus, New York City's largest fintech conference, reinforced that fintech valuations are normalizing downward but haven't bottomed—and capital is becoming scarce.
Despite today's venture recession, fintech investors are bullish on payments, embedded finance, accounts payable and accounts receivable, and vertical software.
These subsectors are tackling huge markets and could generate attractive profit margins.
We believe that some companies' margins will be boosted by generative AI. Yet VCs outlined that most portfolio companies have not defined a clear generative AI strategy. Nevertheless, select early-stage startups are building with generative AI tools.
We also think that large banks and insurance companies are considering generative AI—but so far fintechs are beating them to it. Since the conference last week, Ramp, MoneyLion, and Public all announced or mentioned new product features that will use generative AI.
In our research note, we've compiled the main highlights from the conference that every fintech investor should know: 16 Key Takeaways from Fintech Nexus USA 2023
We also want to speak to investors about the event. To set up a call to discuss what we learned, email me and senior fintech analyst Rudy Yang today. You can also follow me on Twitter: @JamesUlan100.
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Thanks,
James Ulan
Lead Analyst, Emerging Technology |
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Q1 Public BDC Venture Lender Earnings
Business development companies are a crucial puzzle piece in the growing venture debt market.
Firms like Hercules and TriplePoint offer debt financing to VC-backed companies—and they've taken off as capital supply for startups has dried up.
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| These BDCs have $1.2 billion in available liquidity combined. |
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As rates have risen, BDCs have captured a greater income share and are optimistic about venture exit market prospects.
Our new research note breaks down venture debt through the lens of public lenders and their latest earnings: |
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Foodtech Public Comp Sheet and Valuation Guide
Foodtech stocks performed poorly overall in Q1, but segments like alt proteins and food delivery outperformed the S&P 500.
DoorDash, in particular, stood out with its stock climbing 30% over the quarter.
Our new comp sheet compiles the latest data on foodtech stock performance, revenue forecasts, and market caps of key publicly traded companies.
Key trends include increasing revenue estimates in e-commerce as well as EBITDA being in the red for restaurant & retail tech: |
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Carbon fintech and consumer startups are becoming increasingly popular verticals among climate tech investors.
Overall VC investment in carbon and emissions tech has shown resilience, totaling $3.6 billion in Q1 to register a 35% increase year-over-year.
Our new Carbon & Emissions Tech Report covers all the latest trends, highlighting opportunities within green construction and carbon accounting startups.
Investment in energy efficiency is also spiking, reaching its highest-ever quarterly value in Q1: |
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VC investment in the supply chain tech sector continued to drop in Q1.
Total deal value fell 45% on a quarterly basis, while the number of deals was down 19%. Though, enterprise supply chain management held strong as a subsector.
Our new Supply Chain Tech Report unpacks the latest data and also highlights emerging opportunities in segments like freight tech and inventory tracking: |
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Digital health analyst Aaron DeGagne weighs in on Hippocratic AI's $50 million seed round co-led by General Catalyst and Andreessen Horowitz:
"Implications of generative AI and large language models in digital health have been a bit murky, and Hippocratic AI's launch indicates where AI investment could see greater focus—on AI-powered medical guidance that moves beyond symptom checkers.
"Barriers remain to scaling the 'AI doctor' business model due to the training and implementation cost of LLMs, and humans that will still be needed to refine the model. While the risks involved with medical guidance AI programs are less significant than health diagnostics, some risk remains, and heavy regulatory scrutiny is likely before this tech is widely adopted.
"On the positive side, patient-facing AI technology could help overcome workforce challenges and improve access to care by lowering the cost and friction of receiving medical guidance such as genetic counseling and dietary advice (two functions currently under development by Hippocratic).
"This deal is yet another example of how buzz around generative AI is fueling VC investment despite lower funding overall, and healthtech is no exception, with opportunities ranging from revenue cycle automation to medical scribing and chatbots for behavioral health applications."
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Aaron DeGagne
Emerging Technology Analyst
Digital Health & Medtech |
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Our insights and data featured in the press:
- For the first time in more than a decade, returns for venture funds were negative for three quarters in a row. [WSJ]
- The proportion of flat and down rounds rose for the fourth consecutive quarter, to 15.4% of all rounds in Q1. [Fortune]
- The volume of PE-led healthcare services deals declined for the fifth straight quarter in Q1 as the industry settles into a new normal. [Axios Pro]
- Funding down, exits muted, and valuations flat in rough quarter for European startups. [TNW]
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)
- Global Private Market Fundraising Report
- Medtech Report (Launch)
- Vertical Snapshot: Defense Tech
- Founder-owned Businesses in the Current M&A Environment
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Since yesterday, the PitchBook Platform added:
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VC valuations
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1840
People
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601
Companies
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19
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