PitchBook News - Some VCs hold fire on hydrogen

Drilling down on impact investing performance; a full secondaries pipeline; Europe's year of the mega-fund
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The Daily Pitch: VC
January 2, 2024
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Hydrogen had a breakout year. Why are some VCs still skeptical?
(Allen J. Schaben/Getty Images)
The hydrogen industry has been propelled by a swath of federal funding that rolled out last year, from Inflation Reduction Act tax credits to the Department of Energy's $7 billion bet on hydrogen hubs.

But despite the buzz surrounding the vertical, some climate VCs are holding fire on new deals. They're wary of an especially crowded market, untested commercial viability and the risk of planet-warming hydrogen energy leaks.

"There are some who think hydrogen is a panacea. I disagree," said Victoria Beasley, partner at impact climate firm Gigascale Capital.
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Brisk pace for secondaries deals looks likely in 2024
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Secondaries investors are anticipating another banner year for dealmaking.

After an active 2023, the ever-shrinking bid-ask-spread between buyers and sellers on the secondary market and persistent demand for liquidity are setting the stage for another active period for secondary transactions.
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Year of the mega-fund in European PE
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In a year of haves and have-nots, several major fund closes have helped push European PE fundraising close to an all-time high.

But the 10 largest PE funds account for 70% of all capital raised, leaving a long tail of smaller and less-established managers who have struggled to secure commitments this year.
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PE dealmaking fatigue finally reaches the middle market
Sluggishness in the mega-deal universe has hit the PE middle market—which saw a six-year low in deal volume and a roughly 26% quarter-over-quarter decline in exit value in Q3.

Deal multiples for PE transactions targeting small to medium-sized companies contracted from recent peaks, and fundraising also cooled, according to our Q3 2023 US PE Middle Market Report, sponsored by Antares Capital and LBMC. The report breaks down the factors driving the headwinds and explores what could get things moving.
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Getting granular on impact investing performance
In impact investing—seeking to create positive change while getting a bang for LPs' bucks—GPs have targeted infrastructure assets the most over the past 15 years.

But through September, GPs' fundraising for impact strategies overall was down significantly compared to 2022. Some big fund closings in Q4 could change the picture. Our recent analyst note dives deep, breaking down fund data by impact categories and exploring returns on investment.
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The Amazon trickle-down effect
In ecommerce, Amazon's problems are often everyone's problems. Consumers went diving for deals on Prime Day, and in so doing pared back on purchases from other retailers. High inflation softened consumer spending, which in turn has cut into bottom lines across the sector, according to our recent Emerging Tech Research.

The labor market is still tight, so retailers and VCs alike are betting on AI-powered fulfillment robotics systems, and emerging markets in Latin America and India are motivating retailers to expand into new regions. But with VC deals and valuations overall encroaching on decade lows, it's still a long road left ahead until retail bliss.
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