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The Daily Pitch: VC

June 29, 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:

Several generative AI startups are making their presence felt on Capitol Hill

Startups developing photonic chips are helping meet generative AI's high computing demands

Some leveraged loan market metrics have reached levels not seen since the global financial crisis

Low valuations are holding off an expected uptick in European carveouts

Today's Top Stories

Startups, VCs swarm Capitol Hill in generative AI lobbying push

OpenAI CEO and founder Sam Altman
(ANDREW CABALLERO-REYNOLDS/Getty Images)

OpenAI founder Sam Altman has become a familiar face on Capitol Hill, both in highly publicized hearings and closed-door dinners with lawmakers.

But much more quietly, several other AI startups, as well as some major VC firms, are increasingly making their presence felt on Capitol Hill as lawmakers pay greater attention to the potential risks of generative AI technology. Just last week, two leading generative AI startups disclosed new contracts with Washington, DC, lobbying firms.

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Celestial AI's $100M raise shines light on AI computing wall

(dotshock/Shutterstock)

Behind the AI revolution are data centers run by vast numbers of chips, consuming huge amounts of power—and the demand is only growing.

Investors are increasingly funding startups that develop photonic chips, which transmit data with lasers and light as opposed to silicon-based wiring. The latest example is Celestial AI, which has raised $100 million to deliver more computing power with less energy.

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A message from Clear Street

FinTech prime broker Clear Street to launch investment banking business

The public U.S. securities industry moves trillions of dollars a day but still relies on mainframe technology from the 1980s. For many firms, replacing these systems is time-consuming, difficult, and expensive.

Clear Street is an independent prime broker on a mission to become a single-source platform that serves investors across multiple asset classes, on a global scale. The firm processes 2.5% of the gross notional U.S. equities volume on its cloud-native platform and provides institutional clients with the modern essentials for competing in today's complex, fast-paced markets.

Now, Clear Street has hired a team of experienced investment bankers who will build an offering providing strategic advisory, transaction, and creative traditional and alternative capital solutions to emerging growth companies.

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Credit crunch? Leveraged loan market revisits some financial crisis levels

(Jakub Krechowicz/Shutterstock)

With starkly higher debt costs a reality and the specter of recession stubbornly on the horizon, the US credit markets continue to struggle. The issuance of leveraged loans, traditionally the go-to source of lucrative LBO financing, is down about 40% from a year ago as many potential investors remain in a risk-off crouch, wary of a spike in corporate defaults.

How bad is it? While most don't expect a return to the gut-wrenching times of 2007-08, a number of leveraged loan market metrics have reached levels not seen since the global financial crisis.

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European PE carveouts stymied by poor valuations

(voloshin311/Shutterstock)

The anticipated uptick in European carveouts as a share of overall European PE deal activity has yet to materialize, and potential sellers are now reluctant to shed divisions at lower valuations.

At the same time, PE buyers dealing with rising capital costs seem unwilling to engage in the lengthy and complex deal negotiations needed to secure a good deal.

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What the Cava IPO could mean for PE

(Jenna O'Malley/PitchBook News)

Cava's IPO is a glimmer of hope for one of private equity's diminished exit avenues.

VC-backed Mediterranean restaurant chain Cava Group recently listed on the New York Stock Exchange, ending the day as the most successful debut since July 2022 for a company on a US exchange. For PE firms reluctant to exit their investments into a challenging market, the listing signals an opportunity to go public with their own falafel-in-the-rough.

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PE's mega-fund era is over as deal sizes shrink

Leveraged buyouts are shrinking, and the median take-private deal size has halved. Middle-market funds—vehicles that raise between $100 million and $5 billion—are outperforming their larger counterparts. And such funds are pulling in their biggest share of PE capital commitments in a decade.

These trends, which first emerged in late 2022, crystallized in Q1 2023, and they could hold on until the market's next major shift. Our US PE Middle Market Report, sponsored by Antares Capital and Cherry Bekaert, covers notable deals, exit activity, fundraising and more.

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Recommended Reads

Industry experts speculate on why so many newly floated companies are being taken private. [Financial Times]

A visual breakdown of top investment managers' portfolios. [Visual Capitalist]

Attaching the ESG label to an investment vehicle can come with pushback. Many managers are simply renaming their funds. [Bloomberg]

Since yesterday, the PitchBook Platform added:

11

VC valuations

1932

People

689

Companies

49

Funds

See what our data software can do

The Daily Benchmark:
2011 Vintage Global Funds-of-Funds

Median IRR

16.79%

Top Quartile IRR

20.25%

1.34x

Median DPI

Select top performers

Franklin Park Venture Fund Series 2011

Venture Investment Associates VII

Weathergage Capital Investments A

*IRR: net of fees

55 Funds in Benchmark »

Check out the latest version of PitchBook Benchmarks

VC Deals

Phone-maker Nothing has secured $96 million from investors including Highland Europe, GV and EQT Ventures.

Nuvocargo, which facilitates shipping between the US and Mexico, has raised $36.5 million at a more than $250 million valuation in a Series B led by QED Investors.

Milan-based digital asset exchange One Trading, formerly Bitpanda Pro, has raised a €30 million Series A led by Valar Ventures.

Gleamer, which specializes in AI-powered medical imaging tech, has secured a €27 million Series B led by Supernova Invest.

Ramon.Space, which offers computing infrastructure for use in space, has secured a $26 million investment from investors including Ingrasys and Grove Ventures.

Enterprise cybersecurity startup Astrix Security has raised a $25 million Series A led by CRV.

Parabola, a collaborative data tool startup, has raised a $24 million Series B led by OpenView.

Berlin-based cultivated seafood startup Bluu Seafood has secured a €16 million Series A led by Sparkfood and LBBW Venture Capital.

Pixion Games, a Web3 gaming studio, has raised $5.5 million from investors including Avalanche Foundation's Blizzard Fund, Shima Capital and Eldridge.

Estonia-based agtech startup eAgronom has secured $5.5 million from Icos Capital, Soulmates Ventures and SmartCap.

Balderton Capital has led a $3 million seed round for London's 32Co, which offers a platform that connects generalist and specialist clinicians.

PE Deals

Arcline Investment Management has bid $1.8 billion including debt for NYSE-listed flow-control products manufacturer Circor, topping KKR's most recent bid of $1.7 billion.

Qualtrics, whose $12.5 billion acquisition by Silver Lake just closed, concurrently received a $250 million equity investment from merchant bank BDT & MSD Partners, $250 million from Michael Dell's family office DFO Management and $500 million from VC firm Accel.

Paris-based Omnes Capital has committed to investing $250 million in Phoenix-based solar power developer Hawthorne Renewables in the next three to four years.

Equistone-backed UK marketing company ADM Group has acquired Singapore-based peer DASS and its marketing platform, Flow.

HIG Capital has acquired CLC Group, a UK provider of property refurbishment, from the Armitage Family Trust.

Pittco Management, the family office for AutoZone founder Joseph Hyde III, has invested in ShowOps, which provides services for the live events industry.

Exit & IPOs

TDR Capital is looking to sell UK upmarket gym chain David Lloyd Leisure for over £2 billion, Sky News reported.

Thomas H. Lee Partners has been considering selling Nextech Systems, a healthcare software provider, for around $1.5 billion, Reuters reported. Potential buyers include multiple PE firms.

Vision Knight Capital-backed Chinese online furnishings company Ziel Home Technology has held an IPO on the Shenzhen Stock Exchange, raising 990 million yuan (around $137 million).

French chemical company Arkema has agreed to buy Glenwood Private Equity's 54% stake in South Korea-based PI Advanced Materials, a publicly listed specialty materials manufacturer.

Thomson Reuters will acquire Imagen, a UK-based media library management platform that has received backing from Cambridge Innovation Capital, Guinness Ventures and Downing Ventures.

Fundraising

HSBC Asset Management has held the final close on its third secondaries fund, Private Equity Opportunities, on $738 million.

Paris-based VC firm Ring Capital has closed its Ring Mission impact fund on €66 million.

Chart of the Day

"The tail end of 2022 saw a flurry of deal activity in the space. Rebus Biosystems and Resolve Biosciences, both of which are developing multiomics platforms, raised $17.8 million and $71 million, respectively."

Source: 2023 Emerging Space Brief: Spatial Biology

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Several generative AI startups loan market metrics global financial crisis The Daily Pitch high computing demands

PitchBook News - AI startups take on Capitol Hill

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