PitchBook News - Are pro-rata rights good for VCs?

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The Weekend Pitch

August 6, 2023

Presented by Seven Star Group

(Drew Sanders/PitchBook News)

As VC investors focus more on existing portfolio investments, a spotlight has been put on a contract clause that gives early investors the right to participate in future rounds.

Follow-on funding dominates dealmaking, accounting for a record 69% of overall VC deal count so far this year, according to PitchBook data. Investors are now focusing more on their best performing investments, making pro-rata rights an attractive term.

They have been standard for decades, but they are increasingly becoming non-negotiable amid a more investor-friendly environment. A Sifted survey of over 400 VC firms in June found that 78% of respondents said that they were not flexible on the topic.

But critics such as VSC Ventures general partner Jay Kapoor have argued that pro-rata rights in their current form are outdated in a venture market that prioritizes value-add over check writing and are oftentimes unfair to startups and smaller VCs.

This is the Weekend Pitch, and I'm Leah Hodgson. You can reach me at leah.hodgson@pitchbook.com or @LeahFHodgson.

Trivia

PitchBook's Q2 2023 Information Security Report breaks down the segments within the sector that investors are betting on. Which infosec segment is the most well-funded this year so far?

A) Network security
B) Security operations
C) Application security
D) Endpoint security

Find the answer at the bottom of The Weekend Pitch!

PE takes to the soccer field

(Iancu Cojocar/Getty Images)

Following the COVID-19 pandemic and a boom in private market capital, last year saw €4.9 billion (about $5.4 billion) worth of deals in Europe's "Big Five" soccer leagues—up staggeringly from €66.7 million in deals in 2018. Our latest analyst note dives into the explosive growth and complex ownership structures of these teams.

Waiting for the infosec M&A flood

M&A is largely still on hold in most sectors, but the information security industry is waiting for its moment—and it could be coming soon. PitchBook's Q2 2023 Information Security Report lays out the opportunities within the space. VC funding remained flat with 157 deals totaling $2.2 billion, nearly identical to the three previous quarters. Despite this, M&A is still likely to pick up in the second half of the year.

A private market dice roll

(John M Lund Photography Inc/Getty Images)

In 2022, a private market fund manager's success was contingent on the bets they were willing to take. While private funds posted above-average performance in 2021, only a select few—real estate and real assets—hit above a 5% rolling one-year horizon IRR last year.

Our latest Global Fund Performance Report looks at the performance of each asset class and begs the question: What happened?

Quote/Unquote

"A focus is great, but you have to pick an area that is general enough that you're seeing enough opportunities to deploy capital."

—Aabed Meer, partner at Questa Capital, commenting to PitchBook News on the new cancer care-focused VC fund started by Steve Jobs' son, Reed Jobs.

Stay tuned

Keep an eye out for these insights and research reports coming out this week:

Q2 2023 Enterprise Fintech Report
Q2 2023 Carbon & Emissions Tech Report
Q3 2023 PitchBook Private Capital Indexes

Trivia

Answer: A)

Network security is the best-funded segment within infosec as a whole so far this year. To learn more about that segment and others, read PitchBook's Q2 2023 Information Security Report.

This edition of The Weekend Pitch was written by Leah Hodgson, Jacob Robbins and Jessica Hamlin. It was edited by Andrew Woodman and Laural Hobbes.

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PitchBook News - Are pro-rata rights good for VCs?

Trivia

PE takes to the soccer field

Waiting for the infosec M&A flood

A private market dice roll

Quote/Unquote

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