PitchBook News - VC's long road to recovery

 

The next couple of quarters will be telling for VC. Currently, more than 50,000 companies in the US are VC-backed, a figure that doubled from 2016. Not all of those can expect a soft landing. Down rounds are beginning to pick up significantly in the data, highlighting both that companies are resigned to the fact that they might have previously raised at too high of a valuation, but also that investors are sticking to their ideals and not falling back into the fast-paced funding environment we just left.

Restaurant chain Cava's IPO was a bright spot of Q2, but that alone likely won't restart the IPO market. Too many tech companies are waiting for conditions to improve materially before filing an S-1 showing the losses that have often characterized tech listings in recent years. There are now around 800 unicorns in the US, but there have been just two exits in 2023 that have generated a billion-dollar valuation.

VC still has a long way to go.

For more data and analysis, click to download the Q2 PitchBook-NVCA Venture Monitor.

 

Also encouraging: Big banks have slowly waded back into the leveraged loan market. After taking an eight-month sabbatical from underwriting any new loans for large take-privates, a trickle of announcements started in February and accelerated in March.

Private credit funds continued to lend all along and were the main reason the LBO market and PE deal flow, in general, did not collapse coming out of the steepest rate hikes in more than 40 years. Instead, the industry has maintained pre-pandemic levels of deal activity, which were considered strong before the 2020 to 2021 frenzy set the bar impossibly high.

We suspect the second half of 2023 will provide its own twists and turns, and will render a verdict as to whether higher interest rates are here to stay — or the industry's journey to a friendlier LBO backdrop is finally complete.

Download the Q2 US PE Breakdown for more data and analysis.