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The Daily Pitch: VC

September 20, 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:

How LPs can pick a winning GP from a sea of many

PE firms face a decision: prop up struggling assets or cede them to creditors?

Existing investors in Instacart and Klaviyo now face a dilemma on whether to sell their shares

Despite a lackluster Q2, opportunities in insurtech continue to emerge

PE finds smaller deals attractive as cosmetics investment slows

Today's Top Stories

Questions to ask to pick the right GP

For LPs, there are plenty of fish in the sea of alternative investing: almost too many GPs to choose from. Because looking at a firm's prior fund performance is not a foolproof method for picking future top performers, allocators need to pay close attention to other details.

Asking the right questions is important, but knowing what to listen for in the answers is key. In our latest analyst note, senior strategist Hilary Wiek shares strategies to sort through GP fundraising pitches and help LPs identify managers that can deliver on their promises.

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'Praying for rain': Instacart, Klaviyo IPOs bring VCs relief, lessons

Instacart CEO Fidji Simo rings a custom Nasdaq bell during a ceremony Tuesday in the company's San Francisco office.
(Nasdaq/Vanja Savic)

Venture investors are feeling relief mixed with buyer's remorse after a pair of well-received tech IPOs brought clarity to the startup market.

Instacart's shares rose 12% in its first day of trading yesterday, lending it an $11.3 billion valuation, a 71% drop from its peak in 2021. Additionally, marketing tech company Klaviyo priced at a $9.2 billion valuation, a modest decline from its last private round.

Existing investors now face a dilemma: sell their shares or hold on. For those that overpaid in the 2021 deals boom and have disgruntled LPs, the choice isn't so simple.

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A message from CohnReznick

Webinar | Protecting Value + Creating Value = Maximum Value

CohnReznick will be hosting a webinar at
2 p.m. ET on Tuesday, October 3.

Private equity decision-makers identify facets that make a target attractive, develop strategies for protecting and retaining the high-value components of their acquisition, and build a value-creation plan to achieve their investment objective.

But these later steps can achieve more powerful results when executed in tandem: Implementing value-protecting strategies while activating the value creation roadmap.

Tune in to this live webcast for strategies and case stories for both value creation and value protection, plus insights on building a value creation function that can simultaneously pursue both.

Register for webinar

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Insurtech dives into the internet of things

Despite a decline across deal counts and value in Q2, insurtech startups still found a bright spot by collaborating with internet-of-things makers, according to our latest Emerging Tech Research. In insurtech, 115 deals were tracked generating $1.2 billion in deal value, representing 13.5% and 12.7% declines over the previous quarter, respectively.

While total VC investment for the first half of the year is the lowest it has been since 2017, opportunities continue to emerge within the space, like startups working on hastening insurance payouts.

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Greater China VC trends in 5 charts

Shanghai (wei wei/Getty Images)

The Greater China region has seen a pullback in VC dealmaking this year, with annual totals likely to fall behind last year's.

We put together five charts from our H1 2023 Greater China Venture Report to highlight the key trends that have defined the region's VC ecosystem in the first six months of the year.

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PE targets smaller deals as cosmetics investment slows

(Iryna Veklich/Getty Images)

GPs have targeted household names in the cosmetics sector for some time, but firms are now looking for smaller brands, seemingly unwilling to pay the premium that established brands command.

While private equity deal value has declined significantly from its peak years of 2020 and 2021—which saw $11.7 billion spent across more than 100 deals—volume has kept pace with earlier years.

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Private equity faces painful choices over distressed assets

(Wong Yu Liang/Getty Images)

In a tight economic climate it is inevitable that some companies will flounder. And, after years of easy finance, many PE portfolio companies are carrying a heavy debt burden that they may struggle to service or refinance.

Now some PE firms will need to decide how to prop up struggling investments or if they may be better off giving them up altogether.

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2023 MVCA Research Report shows resilience in Michigan

Michigan Venture Capital Association (MVCA), the nonprofit trade association that advocates for more capital and talent for Michigan’s entrepreneurial and investment community, released its 2023 MVCA Research Report, a comprehensive analysis of investment activity that has had a positive impact in the state.

While national venture capital investing decreased in 2022, Michigan continued to show strength with $1.2 billion invested into Michigan-based companies—an increase of 12% over 2021. Within the Great Lakes region, Michigan has been accelerating in venture capital activity with a growth rate of 13.7% since 2006, which is slightly higher than the region’s overall 11.7% and the national rate of 10.8%.

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People

Margaret Wang, former head of Bridgewater Associates Singapore, has joined Recharge Capital as a managing partner focused on the firm's women's health strategy. Wang will lead Recharge's Singapore office and Asia-Pacific operations.

VC Deals

Israeli cybersecurity startup Cato Networks has raised a $238 million funding round led by Lightspeed.

Flex, which offers financing and banking for smaller businesses, has raised a $20 million Series A led by Florida Funders and $100 million in debt from CIM.

Pryon has raised a $100 million Series B led by US Innovative Technology Fund for its AI-powered knowledge management platform.

Fintech startup ZayZoon has raised $34.5 million in debt and Series B equity led by Framework Venture Partners.

Plan A, a Berlin-based provider of carbon accounting and decarbonization software, has raised $27 million led by Lightspeed.

Edison Partners has led a $25 million growth equity investment in VC-backed Take Command, a healthcare benefits provider for small and midsize employers.

Alcion, a data management startup, has raised a $21 million Series A led by Veeam.

Metaloop, an Austrian company that connects scrap metal sellers with buyers, has secured €16 million in a round led by FirstMark Capital.

Belgian tire recycling startup Risorce has received €12.5 million from investors including Noshaq and Wallonie Entreprendre.

Paris-based cyber insurance provider Stoïk has raised €10 million in a round led by Munich Re Ventures.

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PE Deals

McWin Capital Partners has acquired a majority stake in French restaurant chain Big Mamma, valuing the company at €270 million, the Financial Times reported.

Capital D has picked up a minority stake in Electrify Video Partners, an investment firm that acquires YouTube channels, providing up to $85 million for the firm to deploy.

The Carlyle Group has acquired a minority stake in Captrust Financial Advisors, a registered investment advisor backed by GTCR that serves institutions and high-net-worth individuals.

Lovell Minnick Partners has invested in Net at Work, a technology operations specialist for small and medium-sized businesses.

Portfolio Companies

VC-backed battery metals recycling specialist Redwood Materials has acquired Redux Recycling, a German lithium-ion battery recycler.

Exit & IPOs

Mayfair Equity Partners has sold The Snowfox Group, the owner of Japanese restaurant brand YO! Sushi, to Zensho Holdings for $621 million.

TPG is considering selling fast-casual restaurant chain Mendocino Farms in a deal that could value the company at more than $400 million, Reuters reported.

Fundraising

Astanor Ventures has closed its second fund on €360 million. The vehicle will target early-stage food and agriculture startups.

Chart of the Day

"The current hype cycle is also greatly inflating valuations. Multiple investors we spoke with reiterated a willingness to withhold writing checks until the space settles. Valuing startups facing years of development and millions in training costs before customers are onboarded is also challenging, though this risk existed before the current frenzy."

Source: Generative AI in E-Commerce

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PitchBook News - How to pick the right GP

2023 MVCA Research Report shows resilience in Michigan

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All eyes on eyecare

China's VCs take shelter

Healthtech startups strain against funding woes

Examining US investments in China

Foodtech's changing fortunes

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