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PitchBook News - Why hedge funds are leaving VC

Plus: Biopharma VCs back to stable bets, fundraising slows overall, cash flows into generative AI & more
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The Weekend Pitch
December 10, 2023
Presented by Deloitte
(Joey Schaffer/PitchBook News)
When deep-pocketed hedge funds made a massive push into venture capital during the pandemic, effectively fueling the tech dealmaking boom, I couldn't help but wonder how these investors would respond when the market inevitably turned south.

It didn't take too long for this scenario to play out.

Most hedge funds that were active in venture are now selling startups in the secondary markets, according to a person briefed with ongoing portfolio sales and several secondary investors who were offered these assets. Tiger Global, which has hedge fund roots, has been trying to sell its assets since earlier this year, and at least a couple of other large investors have hired advisers and other consultants to market their assets to secondary buyers, these people say.

I'm Marina Temkin, and this is the Weekend Pitch. You can reach me at marina.temkin@pitchbook.com or @MTemkin on X.

Several firms, including Tiger Global and Coatue, launched into venture by funding startups with traditional 10-year vehicles. But most players in the category were investing out of one large, commingled public and private fund.

That distinction matters a lot in this environment. If a hedge fund is operating out of a commingled vehicle, their LPs can withdraw capital at regular intervals, such as quarterly or annually. That's what's happening now, and it's effectively forcing these asset managers to walk away from their VC strategies in a down market.
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A message from Deloitte  
Mapping the key trends in e-commerce & retail's evolution
E-commerce penetration was supercharged by the COVID-19 pandemic, but in some ways has also grown more complex in the years since, especially in its convergence with retail's trends. Deloitte’s latest edition of the Road to Next series explores this unique space to assess how its ongoing transformation points to larger, slower-moving trends and present-day concerns, with key areas of focus including:
  • Analysis of datasets on e-commerce retail expansion-stage activity, coupled with models of US recession probability and financing metrics.
  • How broader economic and geopolitical trends are intertwining to impact startup to growth-stage innovation in the space.
  • A spotlight on the unique complexities of manufacturing directly for retailers, but also why they may be more tentatively embracing those challenges.
Read it now
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Trivia
Congruent Ventures recently closed its third flagship fund on $275 million. The climate-focused firm was able to reel in a new university endowment during its fundraising. Which school joined to invest in the fund?

A) Cornell University
B) Northwestern University
C) University of Washington
D) Stanford University

Find your answer at the bottom of The Weekend Pitch!
 

Investing in the cure

(VCG/Shutterstock)
VC investment in biopharma peaked in 2021, and dealmaking trends are moving back to pre-pandemic norms: Firms are making fewer, larger and more stable bets on drug development and delivery.

Our inaugural biopharma Emerging Tech Research delivers valuable insights for seasoned biopharma investors and curious newcomers alike, with detailed spotlights on the areas VCs are investing in the most in 2023.
 

Timelines lengthen as
fundraising decelerates

Getting to the finish line for a private capital fund has hardly ever been a swift affair. But as returns on investment sag for strategies like VC, the time from GPs opening to holding final closes on their vehicles has extended, even for experienced firms.

Our advice to GPs in the midst of fundraising? Be patient.

Granular data on fundraising timelines and more are featured in PitchBook's most recent iteration of the Global Private Markets Fundraising Report.
 

SaaS poised for
disruption by AI agents

While the VC downturn has been hitting other verticals, generative AI remained strong, according to our recent Emerging Tech Research. We tracked more than 1,600 deals worth $21.1 billion total in the AI and machine learning space in Q3.

There are still untapped opportunities, including startups poised to disrupt SaaS with coding and operations automation as well as the AI hardware startups starting to emerge.
 

Quote/Unquote
"The consensus is that there's still a significant difference in returns between public and private markets. [LPs] are counting on that."

—Dave Goodsell, executive director at Natixis Investment Managers, on how PE has increased its share of all private capital raised.
 

Trivia
(Vito Palmisano/Getty Images)
Answer: B)

Northwestern University committed to Congruent Ventures' third climate-focused flagship fund. Read our reporting on the $275 million vehicle here.
 

Stay tuned
Keep an eye out for these insights and research reports coming out this week:
  • Q3 2023 Insurtech Report
  • Emerging Sustainable Investing Opportunities: Carbon Utilization
  • Q3 2023 Mobility Tech Report
  • Q3 2023 US PE Middle Market Report
  • Q3 2023 Healthcare IT Report
  • Q3 2023 Digital Health Report

This edition of The Weekend Pitch was written by Marina Temkin, Emily Burleson and Jacob Robbins. It was edited by James Thorne and Clarinda Simpson.

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