VCs hold fire on continuation funds—for now

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The Daily Pitch: VC

January 10, 2024

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

In today's Daily Pitch, you'll find:

Our 2023 Annual US PE Breakdown examines how dealmaking could turn around in 2024

VCs have been holding back on continuation funds—further markdowns could change that

Exit possibilities were a key topic at JP Morgan's health conference, where startups held out hope for an IPO comeback

Continuation funds will flourish in 2024 and other PE predictions

Public enterprise SaaS companies are coping with a recession of enterprise spending

Today's Top Stories

VCs love the idea of continuation funds—here's why there aren't more of them

(Arctic-Images/Getty Images)

Continuation funds are gaining popularity with VCs. The vehicles—common in PE—allow existing LPs to sell aging assets to new buyers or roll those investments into new funds.

At a time when there are few opportunities to sell, continuation funds could give options to LPs to realize liquidity or remain invested if they believe the companies have room to grow.

But despite massive interest, hardly any VCs are closing these vehicles. Continued pressure for liquidity and further markdowns could change that.

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PE's rebound in 2024 hinges on exit environment

On the back of its worst year in dealmaking since 2016, the US PE industry needs a snapback in exits to get the market rolling in 2024. Last year, PE capital deployment in the US dropped over 29% and total US exit value fell more than 26%, causing dry powder to swell to a record high.

As traditional exit routes become clogged, PE investors, facing unfavorable valuations and an impending maturity wall, are ready for distributions to flow again. Our 2023 Annual US PE Breakdown, sponsored by Stout, Baker Tilly and Blue Owl Capital, explores the factors that have held the industry back after two years of decline and how dealmaking could turn around in 2024.

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Healthcare startups hold out hope for IPO comeback

(Manassanant Pamai/Getty Images)

PitchBook analyst Aaron DeGagne reports that exit possibilities were a key topic on the second day of JP Morgan's healthcare conference in San Francisco—as market participants held out hope for a reopening of the IPO window:

Late-stage startups emphasized paths to profitability and a desire to go public. Our analysts expect smaller, less profitable startups to test the public markets first, since those with strong balance sheets can afford to wait.

Illumina expects to finalize a decision on its plan to divest cancer-testing subsidiary Grail by June. An IPO of Grail could be one of the largest healthcare listings of the year, potentially exceeding $7 billion.

PE-backed Quantum Health, which also spoke at the conference, is near the top of our analysts' list for an IPO once the window opens, with a long-term history of positive EBITDA.

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Returns rallied for fintech SPACs in Q4

Many cohorts of public companies under the fintech umbrella outperformed major indexes in Q4, with leaders including proptech, neobanks and crypto. When dividing fintech companies by debuts via SPAC versus recent IPO, the average performance of SPAC companies narrowly exceeded the latter group. Still, IPO companies came out on top in a full-year comparison.

Our Q4 2023 Fintech & Payments Public Comp Sheet and Valuation Guide tracks stock performance, valuations and market caps—as well as forecasts for revenue, EBITDA and earnings per share—for key publicly traded companies.

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Public enterprise SaaS companies coping with leaner market

Revenue growth is down for public enterprise SaaS companies as the industry works to stabilize it through a recession of enterprise spending. Still, growth rates stabilized in Q4, which shows a clear positive for enterprise spending, and a soft landing could bring greater corporate confidence and thus spending on software.

Our Q4 2023 Enterprise SaaS Public Comp Sheet and Valuation Guide tracks stock performance, valuations, revenue growth, EBITDA growth, free cash flow and earnings per share for key publicly traded companies.

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Our analysts' PE predictions for this new year

(Erhui1979/Getty Images)

After a rough year for PE, what's the outlook for 2024? Will dealmaking remain constrained by still-high interest rates? Will fundraisers tread a rocky path or find smoother ground?

As the new year gets underway, here are a few predictions from PitchBook analysts on how the private equity market will play out this year.

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Since yesterday, the PitchBook Platform added:

21

VC valuations

1913

People

615

Companies

32

Funds

See what our data software can do

The Daily Benchmark:
2020 Vintage Global Secondaries Funds

Median IRR

24.53%

Top Quartile IRR

31.47%

0.19x

Median DPI

Select top performers

AlpInvest Partners Fund VII—Secondary Investments

Dover Street X

LTO Fund III

*IRR: net of fees

21 Funds in Benchmark »

Check out the latest version of PitchBook Benchmarks

People

Keith Rabois, a general partner at Founders Fund, has been hired by Khosla Ventures as a managing director, The Information reported.

VC Deals

Singapore-based semiconductor startup Silicon Box raised a $200 million Series B at a $1 billion valuation from investors including BRV Capital, Event Horizon Capital and Hillhouse Capital.

Second Dinner, a video game developer, raised a $100 million Series B led by Griffin Gaming Partners.

Cloud network cybersecurity startup ExtraHop raised $100 million in growth capital.

PerformYard raised $95 million from Updata Partners for its staff performance management platform.

AI-powered 3D modeling startup Luma AI raised a $43 million Series B with participation from Andreessen Horowitz.

Corporate expense management startup Conta Simples raised a $41.5 million Series B led by Base10 Partners.

Zilo, a London-based provider of asset and wealth management software, completed a £25 million Series A led by Fidelity International Strategic Ventures and Portage.

Anecdotes raised a $25 million Series B led by Glilot Capital Partners. The Palo Alto-based company offers compliance and risk management software.

Belgian funding distribution specialist Unbox raised a €12 million Series A led by HSBC Asset Management.

Munich's Einwert secured a €4 million seed investment led by Ventech for its real estate value management platform.

UK-based biotech company FA Bio, which specializes in identifying microbes that improve soil health and crop yield, raised £5.3 million led by Clean Growth Fund and Pymwymic.

PitchBook webinar: J.P. Morgan Healthcare 2024 recap

Join PitchBook's healthcare analyst team live in San Francisco for a recap of the J.P. Morgan Healthcare Conference and a look at what's in store for the year ahead. Our team will dive deep into the most important takeaways from private company presentations, conference floor discussions, and the industry context behind the conference's biggest press releases. Topics include:

Private companies to watch in 2024.

Can't-miss announcements and what they mean for the healthcare private markets ecosystem.

Key emerging trends across the industry, from services to digital health to biopharma.

Register now to secure your spot.

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PE Deals

Perwyn made a strategic investment in Crosta & Mollic, a UK grocery business specializing in Italian food.

Crest Rock Partners invested in Specialty Pipe & Tube, a supplier of mechanical pipe and tubing.

Investcorp acquired Kansas-based Best in Class Technology Services from Dunes Point Capital, which remains a minority shareholder in the heating, ventilation and air-conditioning company.

IK Partners and Mérieux Equity Partners agreed to sell their respective stakes in Swedish biotech company Mabtech to EQT.

Exits & IPOs

Gulf Capital sold AmCan, a distributor for sports nutrition brands across the Middle East and North Africa, to Nasdaq-listed food supplier The Chef's Warehouse.

Fundraising

Franklin Templeton-backed Lexington Partners wrapped up its latest secondary fund on $22.7 billion. The vehicle surpassed the $15 billion fundraising target and is a large step-up from Lexington's prior secondary fund closed in 2020.

Asia Partners, a Southeast Asia-focused fund, raised $474 million, The Wall Street Journal reported.

Denmark-based Kost Capital held a first close of its €25 million fund. The vehicle will target pre-seed and seed-stage foodtech startups.

Investors

Apollo Global Management is shuttering its Asian real estate equity fund business, leading to the departure of several executives who headed the firm's real estate equity investments in the region, according to reports.

Apollo Global Management is backing a new investment firm launched by a former GCM Grosvenor executive. The firm, known as New Catalyst Strategic Partners, that will provide seed and growth capital to private fund managers.

Chart of the Day

Source: 2023 Japan Private Capital Breakdown

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VCs hold fire on continuation funds—for now

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