Structured term sheets vex early backers

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The Daily Pitch: VC

June 26, 2023

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

In today's Daily Pitch, you'll find:

Why emerging managers are struggling to secure investor dollars

Startups agreeing to "investor-friendly" terms risk burning bridges with early backers

PE exits are slower than they were during the global financial crisis

VC investment in mobility tech startups resumed its fall in Q1 2023

Today's Top Stories

'Investor-friendly' terms rankle startups' early backers

(Dziobek/Shutterstock)

Founders struggling to raise a new round are having to put out fires on their cap tables as they turn to structured term sheets and down rounds in a bone-dry dealmaking market.

Startups are quietly closing bridge rounds with liquidation preferences as high as 4x to get themselves over the line to positive revenue numbers, but in doing so, are risking burning bridges with their earliest investors.

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Emerging managers' struggles and the future of smaller VC ecosystems

Emerging US VC managers have only secured $2.3 billion so far this year, putting them on track to close less than $20 billion in annual commitments for the first time since 2016.

Limited track records and returns have given LPs pause amid a volatile market, but will there be long-term implications for the venture market if these newer managers continue to be passed over?

Our latest analyst note breaks down emerging managers' historic performance, the factors making fundraising more difficult and the larger ramifications for the venture market as younger managers struggle to secure investor dollars.

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A message from Ontra

New guide: Top 10 Terms in Subscription Documents

It usually takes investors months to fully and accurately complete a subscription agreement and investor questionnaire when applying to a private fund. Investors navigate 100+ pages in a PDF, carefully review complex legal language, and determine which questions and tax forms apply to them. It's an arduous process that delays a manager's fundraising process.

Given the challenges of investor onboarding and the impact on fund managers, Ontra took a look at 10 key terms that contribute to the length, complexity, and importance of sub-docs, from irrevocability to indemnification provisions. In reviewing these crucial terms, fund managers can see the value in transitioning to a digital fundraising platform that improves and streamlines the investor experience.

Download the guide, Top 10 Terms in Subscription Documents

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Moves by China, California add buzz to slumping mobility tech

Venture investing in mobility tech startups lost the momentum of its recovery and fell in Q1. Recent events affecting the vertical, however, are driving emerging opportunities: China pushed aside Japan to lead globally in vehicle exports, and California shocked the heavy truck industry with a mandate to reduce diesel trucks.

Our latest Emerging Tech Research provides an update and market map for the mobility tech ecosystem. It covers how Chinese electric vehicle startups are adding new perspectives to the market and how electric truck startups are taking advantage of California's controversial new goal.

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Solar's moment in the sun

Solar module producers like Enpal and Sunroof are reeling in major deals even as total investment value in cleantech has fallen over 40% since last year, our Q1 2023 Clean Energy Report finds.

Investors see an opportunity to expand solar energy production outside of Chinese companies, and the Inflation Reduction Act is giving the vertical a major boost. But there are still roadblocks—including a critical minerals shortage—on the horizon.

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PE's exit slump hints at declining returns for LPs

(Hamat Calderon/Shutterstock)

It's been clear that PE exits have fallen hard in 2023, but a new analysis finds that today's slump is even steeper than that seen during the global financial crisis almost 15 years ago.

The fallout could include a long-lasting drag on fund performance.

Recommended Reads

As the supply of debutantes dries up, etiquette experts explore a new market: anxious executives. [The Economist]

Geopolitical tensions are ramping up the need for more disclosure about US VC investments in China. [Institutional Investor]

AI isn't coming for marketers' jobs—not yet, at least. [The Wall Street Journal]

Since yesterday, the PitchBook Platform added:

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The Daily Benchmark:
2013 Vintage US PE Funds

Median IRR

15.77%

Top Quartile IRR

23.83%

1.18x

Median DPI

Select top performers

Goode Partners Consumer Fund II

Clarion Investors II

Accel-KKR Capital Partners IV

*IRR: net of fees

75 Funds in Benchmark »

Check out the latest version of PitchBook Benchmarks

VC Deals

Investors have committed $25 million to a Series B for Calidi Biotherapeutics. Jackson Investment Group is leading the round and has invested $5 million. Calidi will receive the remaining $20 million after its SPAC merger with First Light Acquisition Group.

EvaluAgent, a startup developing quality assurance testing software for call centers, has raised a $20 million Series A led by PeakSpan, TechCrunch reported.

Mobile payments company Mypinpad has raised $13 million in a round led by Crossfin Holdings.

Seaweed upcycling startup Carbonwave has secured $6 million from Pegasus Capital Advisors and the Global Fund for Coral Reefs.

AvoMD, which helps clinicians and hospitals build their own applications, has raised a $5 million seed round led by AlleyCorp.

Cakewalk, a German identity and access management specialist, has raised €3 million in a round led by Fly Ventures.

German HR-tech company Heynannyly has raised €1.6 million in a seed round that included NCA.

PE Deals

AlbaCore Capital has agreed to acquire Babylon, an Austin-based healthtech company, in a restructuring deal that coincides with the company's acquisition by Switzerland-based MindMaze Group.

Macquarie Asset Management has agreed to sell Ceres Terminals, which operates in North America, to Seattle-based Carrix, a global marine terminal operator backed by Blackstone.

Advent International has acquired a majority stake in French fragrance companies Parfums de Marly and Initio Parfums Privés.

Allegro Funds is in talks with PwC Australia to buy its government, education and healthcare practice, Reuters reported.

Energy Infrastructure Partners is looking to buy a stake in listed Italian energy company Eni's low-carbon division Plenitude, Reuters reported.

Middleton Partners has agreed to invest $20 million in Pinstripes, an Illinois-based restaurant and entertainment chain that plans an IPO via SPAC merger with Banyan Acquisition Corp.

Exit & IPOs

Italian energy company Eni has agreed to acquire Neptune Energy from The Carlyle Group and CVC Capital Partners for $4.9 billion.

Chart of the Day

Source: PitchBook's 2023 France Private Capital Breakdown

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