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PitchBook News - Founders selling shares? Not just yet

Plus: VC valuations stabilize but stay lower, many healthcare specialists stay strong, the AI balloon may pop & more
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The Weekend Pitch
August 13, 2023
Presented by Masterworks
(Chloe Ladwig/PitchBook News)
In 2021, founders got love-bombed. Money was cheap and valuations were high and getting higher.

Now they're being crushed by the harsh reality of valuation markdowns on the secondary market and a flipped negotiation table on funding rounds.

A practice that was previously common at the height of the 2021 bubble—founders selling shares as secondaries as part of a funding round—has all but ceased.

Both founders and early-stage investors in need of liquidity may want to sell a portion of their shares; they just don't always want the other party to. "If I or most other VC investors saw a founder prematurely selling off a material portion of their equity, we'd run the other way," said Alumni Ventures partner Yev Gelfand.

In other words, founders, investors and secondary buyers are in an unhappy love triangle.

This is the Weekend Pitch, and I'm Rosie Bradbury. You can reach me at rosie.bradbury@pitchbook.com or @_RosieBradbury.
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A message from Masterworks  
Yes, this platform's 77% return is an outlier—but the rest may surprise you
Masterworks' 15th sale just weeks ago returned an impressive 77% to investors. While such a high return is an outlier for the blue-chip art investing platform, every one of their sales has returned a profit to investors.

In full, Masterworks has over 300 paintings, and their 15 exits have delivered: 32%, 39.3%, 36.2%, 27.3%, 9.2%, 33.1%, 21.5%, 17.8%, 13.9%, 35%, 10.4%, 325.5%, 4.1%, 17.6%, and 77.3%, net annualized returns*. Every sale but one outperformed the stock market in the period from when it was offered to when it was sold.

Offerings on the platform can sell out in minutes. However, PitchBook readers can skip the waitlist to join with this exclusive link.

*Performance of exited investments is not representative of artwork that has not yet sold and past performance is not indicative of future results. See important disclosures at masterworks.com/cd
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Trivia
The prolific private investor firm KKR and entertainment conglomerate Paramount Global entered into an agreement for the former to buy which iconic publisher from the latter?

A) Little, Brown and Co.
B) Penguin Publishing Group
C) Simon & Schuster
D) Phaidon

Find your answer at the bottom of The Weekend Pitch!
 

Where VC valuations sit now

(Brooke Pennington/Getty Images)
There are signs that VC valuations across most stages are finally stabilizing—though the glass may still be less than half full. Amid an IPO freeze, reduced risk appetite from investors and a pullback among nontraditional investors, valuations are struggling to reach the peaks of 2021 and 2022, according to PitchBook's Q2 2023 US VC Valuations Report.
 

Fundraising woes? Not for healthcare specialists

(Morsa Images/Getty Images)
PE and VC allocations for healthcare specialists spiked in 2021 after the COVID-19 pandemic increased demand for such services as virtual care delivery, mRNA therapeutics, mental health care and rapid/point-of-care diagnostics. Fundraising for PE healthcare specialists and VC non-life-sciences healthcare specialists has remained elevated ever since, while VC life-sciences managers' fundraising has normalized since the 2021 peak.

Check out PitchBook's inaugural Healthcare Funds Report for the H1 2023 fundraising status of 450 healthcare and life-sciences specialist managers by strategic style.
 

Is the generative AI balloon about to pop?

(MR.Cole_Photographer/Getty Images)
Despite generative AI being the talk of everyone in tech for the past few months, investors are growing impatient with a lack of returns on investments, according to PitchBook's Q2 2023 Artificial Intelligence & Machine Learning Report. As investors contemplate what's next, though, there remain many areas where gen AI has yet to be applied and many ways to make the models even smarter.
 

Quote/Unquote
(SOPA Images/Getty Images)
"Based on this trend, we also like to make a good balance between gas and brakes for resuming investment activities."

—SoftBank's CFO Yoshimitsu Goto, speaking during an earnings call after the company reported that its Vision Funds were back in the black.
 

Recommended Reads
Crypto's next craze? Orbs that scan your eyeballs. [The New York Times]

Hospital bosses love AI. But many doctors and nurses are worried about the human cost. [The Washington Post]

Is the Airbnb dream dead? Short-term rentals are going strong, but being a host has become much harder than it used to be. [Bloomberg]
 

Stay tuned
Keep an eye out for these insights and research reports coming out this week:
  • Q2 2023 Healthcare Services Report
  • Q2 2023 European VC Valuations Report
  • Q2 2023 Agtech Report
  • Q2 2023 Medtech Report
 

Trivia
Answer: C)

KKR agreed to buy Simon & Schuster from Paramount Global for $1.6 billion. Previously, Penguin attempted to purchase the company, but the Biden Administration blocked the acquisition. Read more about that deal here.

This edition of The Weekend Pitch was written by Rosie Bradbury and Jacob Robbins. It was edited by James Thorne, Laural Hobbes and Ron Prichard.

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