PitchBook News - Making sense of seed deal data

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The Research Pitch

November 4, 2023

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Global Market Snapshot: How did returns look in October? Our report features the latest trends in the equity, debt, and commodities markets, tracking performance across many indexes and sectors. Download it here.

Talking VC: When might we begin to see a recovery in US VC dealmaking and exit activity? On Thursday, our panel of professionals will discuss key findings from the Q3 PitchBook-NVCA Venture Monitor. Register here.

Emerging Tech Talk: On Wednesday, we'll discuss the re-commerce ecosystem, technology landscape, and outlook with Sarah Pinner, co-founder and CEO of Beni. For more details and to register in advance, click here.

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The 'seed blip' has left deal metrics at unsustainable levels

The seed stage has remained insulated against market headwinds with the median deal size and pre-money valuation at or near all-time highs, while other stages have declined in reaction to the market.

In recent years, the near-zero interest rate environment and insatiable investor appetite to take part in the historically high returns of the venture asset class drove record levels of US VC fundraising activity and spurred a highly competitive dealmaking environment.

Large investors, enticed by the ability to add opportunistic alpha to their investment strategies, dramatically increased their participation in seed and pushed deal metrics to consecutive annual highs in 2021 and 2022.

Despite large-investor involvement in seed starting to recede in Q2 2022, robust seed deal metrics continue to be supported by the surplus of dry powder held by smaller VC funds. Yet, the upward trajectory of seed deal metrics is unsustainable and has led to an erosion of value creation between seed and the early stage.

It's unclear when the camel's back will break. Given the turbulent fundraising environment will assuredly see fewer new funds closed, the capital available to prop up seed deal metrics in the long term will diminish without the reemergence of large investors at this stage.

While the drought of US VC exit activity and the compression of deal metrics across more mature venture stages have become ubiquitous topics of conversation, this has muffled concerns at the most nascent stages.

As we close out 2023 and a new year is ushered in, the looming question remains: How long can the seed deal metric bull run defy the broader market's contraction?

Download our free research for more: The Seed Blip

Best,

Max Navas
Analyst, Venture Capital

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Mapping the global infrastructure software ecosystem

We've launched coverage of the infrastructure SaaS vertical with a 1,500-company segmentation across four major segments of digital infrastructure solutions.

Drawing from PitchBook's ~3.6 million company profiles, we find that infrastructure SaaS venture deal activity and deal value have steadily decreased from recent highs in 2021 and 2022, with Q3 2023 representing a further overall softening of investments.

We do see signs of stabilization, though not enough to call a rebound yet. Bucking the downward trend are large multimillion- and multibillion-dollar deals for growth-stage companies, especially unicorns and decacorns.

Click for a preview of our debut Infrastructure SaaS Report.

Alongside our taxonomy (four segments, 15 subsegments), we have market projections through 2027, envisioning the global infrastructure software market to grow aggressively from $401 billion in 2022 to $750 billion in 2027.

We expect enterprises will continue to transition from on-premise to SaaS and cloud-based deployments, creating opportunities for meaningful connected strategies with customers while also providing greater revenue continuity for vendors. Additionally, the integration of AI and intelligent automation represents a key next-gen driver of future growth and disruption.

For infrastructure SaaS, we identify these key segments:

DevOps: All application development stages and cycles. Across many industries, application development supports many vital defensive moats and enables the pursuit of dynamic opportunities.

Application Infrastructure: Platforms and systems that enable applications. With ever-increasing complexity, these solutions enable applications to make use of every advancement computer science creates.

Data Software & Systems: The capture, ingestion, and management of data. The foundation of today's astonishing AI advancements lies in immense data and their corresponding management solutions and storage.

ITOps: IT services, resources, and processes. IT Ops is the backbone of nearly every modern enterprise; unfortunately, this sector is especially vulnerable to market headwinds and ongoing uncertainty.

For more data and analysis, download a preview of our debut Infrastructure SaaS Report.

Best,

Derek Hernandez
Senior Analyst, Emerging Technology

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Industry & Tech Research

Private equity's influence on the practice of medicine is undeniable: Roughly 10% of all PE deals each year take place in healthcare services.

Various strategies within the industry, though, differ vastly.

Our annual Healthcare Services Overview provides the essentials for understanding investment drivers across these many businesses, featuring five new categories in our taxonomy update:

read the free report

Startups focusing on green mining and energy-efficient buildings both set records in Q3 for VC deal value.

Across deal stages, climate-tech startups have bucked trends and defied expectations of slow growth, according to our new Carbon & Emissions Tech Report.

The research also covers emerging technologies being piloted in direct air capture and mining decarbonization:

read a free preview

Enterprise fintech startups captured 63% of VC fintech investment during Q3, down from 71% in Q2.

But deal value still climbed to $4.1 billion, up 5% on a quarterly basis.

Our Enterprise Fintech Report looks into the latest trends across areas like real-time payments and generative AI. Open banking, in particular, is an area to watch:

read a free preview

Webinars & Events

NAVigating considerations and controversies around NAV loans

Net-asset-value loans have emerged in recent years as a solution to help portfolio companies maintain liquidity through turbulent conditions.

Challenges in LBO financing and the exit environment have kept NAV loans top-of-mind among lenders, while also raising questions about their usage.

Our panel will debate the benefits and drawbacks of NAV loans from both the GP and LP perspectives on Nov. 16:

Register here

In the News

Our insights and data featured in the press:

Public alternative-fund managers are all-in on private debt: "It dominates. These are not private equity managers anymore. They're private credit managers." [Business Insider]

While its rivals are focused on building stand-alone generative AI models, Apple has targeted machine learning infrastructure. [CNBC]

The aggregate value of European unicorns has fallen for the first time in over a decade. [The Guardian]

"Health systems remain the largest buyers of healthcare IT, but everything is very fragmented." [Axios Pro]

If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.

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More of our recent research (* - report preview):

Market updates

Thematic research

Industry & tech research

Credit research

Coming next week (subject to change)

US VC Valuations Report
Global Fund Performance Report
PitchBook Private Capital Indexes
Healthcare Services Report
Agtech Report*
Germany Market Snapshot

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PitchBook News - Making sense of seed deal data

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Fintech's opportunity in open banking

How LP returns are feeling the exit squeeze

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