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PitchBook News - VC weaklings face key test

Plus: Investors hunger for food-as-medicine companies, VC's busiest players, small deals keep M&A machine running & more
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The Weekend Pitch
July 30, 2023
Presented by Masterworks
(Chloe Latwig/PitchBook News)
In most industries, a crisis that threatens to eliminate many of its weaker companies would create an opportunity for the stronger players to grow their revenues by acquiring middling ones at very attractive prices.

But that's not the case for VC.

Few in the VC industry would deny the industry had become bloated to unsustainable levels during the later years of the boom cycle. A decade ago, there were about 850 active VC firms, according to PitchBook data. By 2023, that number swelled to over 2,500.

Josh Wolfe, the co-founder of Lux Capital, told me last year that the number of VC funds would be cut in half during the downturn as many firms struggle to hit fund size targets or raise capital altogether.

Part of Wolfe's predictions have already come true, as mega-funds such as Tiger Global and Insight Partners have scaled back fundraising ambitions. But it will take years to find out just how deeply the industry is going to thin its ranks and pare down the number of funds out there.

In contrast to private equity, which has been busy acquiring complementary businesses that saw their profit margins dampen amid macro volatility, venture firms are unlikely to join forces with other VCs.

This is the Weekend Pitch, and I'm Marina Temkin. You can reach me at marina.temkin@pitchbook.com or @MTemkin.
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A message from Masterworks  
"Risk-free" 5% return means risking missing out on 35%
Thanks to this year's interest rate hikes, investors can finally earn more on their cash than the .01% rate their checking account was giving them. But while having a "risk-free" return seems comforting, there's a hidden cost banks don’t want you to consider: opportunity.

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See important disclosures at masterworks.com/cd
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Trivia
PitchBook's latest Global M&A Report indicates that in Q2 deal value drifted lower, for one of the weakest quarters since 2020. How much deal value was generated in Q2 2023?

A) $943.9 billion
B) $673.2 billion
C) $789.5 billion
D) $873.4 billion

Find the answer at the bottom of The Weekend Pitch!
 

What the doctor ordered

(Natalia Gdovskaia/Getty Images)
More than 48 million Americans live with a chronic health condition, but food-as-medicine companies are still being overlooked.

Personalized nutrition, ready-to-eat healthy meal delivery and medically tailored food coaching have the potential to fundamentally change how we eat and live. Investors should pay attention, says PitchBook healthcare analyst Aaron DeGagne in his latest analyst note.
 

Ranking VC's busiest players

We've updated our latest PitchBook-NVCA Venture Monitor with league tables ranking the industry's most active players. The report captures how founders and investors are responding as the market tightens further. See the rankings here.
 

Shopaholics' small deals keep M&A churning

(Daly and Newton/Getty Images)
M&A announcements are keeping a steady clip, but the value of those deals is down about 34% compared to this time last year. Despite near-record-high stacks of cash, PE sponsors and corporations are facing a credit crunch—so while they're still shopping, the receipts are a little shorter.

PitchBook's Q2 2023 Global M&A Report, sponsored by Liberty GTS and RBC Capital Markets, explains what's hot—and what's not—in sectors like B2B, healthcare, energy and financial services.
 

Quote/Unquote
"We hope inflation will follow a lower path. … We are attentive to the risks high inflation poses for everyone, and we are always thinking about what's best for our goals and the American people. We're going to be making cautious adjustments."

—Federal Reserve Chairman Jerome Powell after the board raised interest rates to a 22-year high
 

Recommended Reads
The Hollywood strike is leaving influencers sidelined and confused. [The New York Times]

Mykhailo Fedorov is running Ukraine's war like a startup. [Wired]

'It was as if my father were actually texting me': Grief in the age of AI. [The Guardian]
 

Stay tuned
Keep an eye out for these insights and research reports coming out this week:
  • July 2023 Global Markets Snapshot
  • 2023 Global Fund Performance Report (as of Q4 2022)
  • Takeaways from July E-commerce Deals
  • Analyst Note: Private Capital in European Football
  • Q2 2023 Information Security Report
 

Trivia
Answer: D)

In Q2 2023, global M&A deal value fell to $873.4 billion. Read more about the deals, trends and figures in PitchBook's latest Global M&A Report.

This edition of The Weekend Pitch was written by Marina Temkin, Emily Burleson, Rosie Bradbury, Jacob Robbins and John Moore. It was edited by Alec Davis and Laural Hobbes.

Were you forwarded The Weekend Pitch? Sign up at pitchbook.com/subscribe.
 
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