PitchBook News - Sizing up the seed blip

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The Daily Pitch: VC

October 31, 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:

Analysts examine the "seed blip" and how large investors have shaped that funding stage

The 17% step-up for a16z's newest funds relays both good and bad news for VC fundraising

How a niche PE manager finds profit in whiskey barrels and at marinas

Three charts that show the worsening spending downturn in M&A

Our latest PitchBook-NVCA Venture Monitor, now with league tables ranking the industry's most active players

Today's Top Stories

How long will the effects of the 'seed blip' linger?

Deal metrics have fallen for most VC stages since the market peaked in 2021, but one part of the US VC ecosystem bucked the trend: seed. The youngest companies' valuations and deal sizes were generally propped up by large investors whose participation at that stage exploded during the pandemic boom.

Large investors accounted for more than a third of seed deal value in 2022, but their involvement at that stage is starting to recede. Our latest analyst note examines a phenomenon we call the "seed blip," along with how large investors have shaped that funding stage and why the continued growth of seed deal metrics is unsustainable.

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Modest a16z fund step-up ratchets back years of breakneck asset growth for VCs

Andreesen Horowitz co-founder and general partner
Marc Andreesen (Justin Sullivan/Getty Images)

Andreessen Horowitz is reportedly gearing up to raise $3.4 billion total for its next early-stage fund and seed fund, a 17% step-up from its previous pair of vehicles.

The news offers further proof that some top-tier managers can still plan to raise gargantuan funds even as many firms postpone new vehicles or take longer to fundraise. But it also underscores how ballooning AUM is a thing of the past in VC.

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A message from Ontra

Countdown to compliance: Prepare for SEC reforms

The SEC recently adopted new rules for private fund advisers, creating challenging reporting, audit, and disclosure requirements. To comply with the new rules by September 2024 or March 2025, many advisers will need to adopt new procedures, policies, and tools. Join Ontra in exploring the reforms with Daniel Kahl, Partner at Kirkland & Ellis and, most recently, the acting director of the SEC's Division of Examinations.

Learn during the webinar:

Key features of the private fund adviser reforms.
How these amendments will impact private funds advisers.
Steps advisers can take to prepare for compliance.

Register now

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These 10 VCs lead the way in defense, aerospace tech

(Jenna O'Malley/PitchBook News)

VC investors are playing a larger role in redefining the nature of warfare and aerospace as geopolitical tensions boil over. Autonomous weapons, reusable rockets, cyber warfare—tech investors are backing companies with new technology that renders traditional military might less relevant.

We've put together a rundown of the most active investors in the sector and the technologies they're betting on.

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VC continues to stumble through 2023

The Q3 2023 PitchBook-NVCA Venture Monitor, sponsored by Insperity, J.P. Morgan, Dentons and Deloitte, now includes league tables ranking the industry's most active players.

Total exit value remains at an extreme low in the VC market despite signs of an IPO-market thaw. The GPs still deploying capital have slowed their activity dramatically, keeping dry powder close. In turn, capital availability is in decline, taking the market further into investor-friendly territory.

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3 charts: Downturn in M&A spending worsened in Q3

(Punnawit Suwuttananun/Getty Images)

The string of stagnant quarters for M&A spending has snapped. Combined M&A deal value fell 20% from Q2 to Q3, while the total number of deals is down 2.5% so far this year.

In a challenging M&A market, few acquirers are having it easy, but PE firms have faced higher roadblocks. Insights from our latest M&A report explain how and why dealmaking faltered.

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Q&A: How Cordillera seeks value in underexplored niches

(John Fedele/Getty Images)

As private equity fund managers look for ways to differentiate themselves in an increasingly crowded and competitive market, some are looking to niche and underexploited sectors in the search for new avenues of diversification.

We speak to Chris Heller, co-managing partner and founder of Cordillera Investment Partners, a San Francisco-based PE firm that focuses on niche assets including whiskey barrels and wireless spectrum licenses.

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Recommended Reads

Halloween shoppers aren't spooked as an economic slowdown remains elusive despite the Fed's inflation-fighting policies. [The New York Times]

Will the UAW strike turn the Rust Belt green? The historic walkout could reshape regional politics. [The New Yorker]

Crumbling train bridges are everywhere. Railroads and cities are sparring over when to fix them. [The Wall Street Journal]

Since yesterday, the PitchBook Platform added:

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A message from Apex Group

A bigger, more complex industry eBook

In Apex Group's latest eBook, "A bigger, more complex industry," Apex unpacks the specific trends yet to take place in the industry, including themes such as technological advancements, political changes, and economic shifts. What are some of these potential trends that could shape the private equity industry in the coming decades?

Apex is predicting … a sharp increase in global interconnectedness and integration, a stronger focus on sustainability and ESG, data transparency and technology and an uptick of alternative investments.

To find out more, download the Apex eBook on the Apex Group website here.

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VC Deals

Google agreed to invest up to $2 billion in generative AI company Anthropic, The Wall Street Journal reported.

Paris-based Mistral AI, a large language model specialist, is in talks to raise $300 million, less than five months after it closed a $113 million seed round, The Information reported.

Chipmaker JSSI raised 600 million Chinese yuan (about $82 million), with participation from KQ Capital and SL Capital, DealStreetAsia reported.

Space-tech startup Skyroot Aerospace secured $27.5 million in funding led by Temasek.

Goodbytz, a Robotic kitchen specialist, raised a €12 million (about $12.7 million) Series A led by Oyster Bay.

Bioomix, a Danish developer of natural microbial products, raised €6.3 million in a round led by West Hill Capital.

Madrid-based Shakers, which offers a platform to connect companies and freelance digital workers, secured €6 million from investors including Athos Capital and BrightEye Ventures.

PE Deals

Blackstone plans to buy a majority stake worth $1 billion in India's Care Hospitals from TPG.

Blue Owl Capital agreed to acquire funds from Cowen Healthcare Investments, adding about $1 billion to the firm's AUM. The investments focus on mid-to-late-stage equity in biopharmaceutical and healthcare companies.

Apax Partners is buying London-listed data analytics company Ascential's product design business WGSN for a total enterprise value of up to £700 million.

Bernhard Capital Partners agreed to buy Entergy's natural gas distribution business in New Orleans and Baton Rouge, LA, for $484 million in cash.

Oakley Capital Investments agreed to acquire a majority stake in Spanish transport management software provider Alerce. The company's CEO, a member of its founding family, retains a minority stake.

Aurelius Group is in exclusive talks to acquire UK cosmetics chain The Body Shop, Sky News reported.

Exit & IPOs

MidEuropa is selling Romanian food retailer Profi Rom Food to Dutch retailer Ahold Delhaize for an enterprise value of around €1.3 billion.

Fundraising

Ares Management held the final close of Ares Pathfinder Fund II, its latest asset-based private credit fund, on $6.6 billion, surpassing its target of $5 billion.

London-based life sciences investor Abingworth has raised $356 million for its Clinical Co-Development Co-Investment Fund.

UK-based Northern Gritstone has closed its latest fund on £312 million. The vehicle will target early-stage startups in the north of England.

Spain's Arcano Partners has launched a fund focused on investing in aviation assets with a target size of €100 million.

Alethia Venture Partners has closed a $50 million debut fund to invest in growth brands in the consumer beverage space.

The Business Development Bank of Canada launched a $50 million seed venture fund.

Chart of the Day

"Public markets are looking expensive again relative to private markets. Trading multiples on the S&P 500 are more than twice those fetched by mostly private M&A deals on an EV/revenue basis. The spread has widened to where it was prior to the massive take-public wave of 2020 and 2021. While we do not expect a similar flood of new listings any time soon, we think this arbitrage closes through some means. A modest pickup in new-issue equity and debt underwriting would get things rolling, with an M&A recovery likely to follow, led by public buyers cashing in on the much lower valuations of private targets."

Source: PitchBook's Q3 2023 Global M&A Report

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