PitchBook News - Down rounds and deal terms

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The Research Pitch

February 10, 2024

Presented by Dave Cantin Group

US Market Insights: The private markets were mired in a slower deal and exit environment last year. But encouraging economic indicators, improving credit conditions, and the upturn in public market performance signal that change may be afoot. Read our free research.

Talking VC: Dwindling cash runways and a stagnant exit environment have created intense challenges for US VC. On Thursday, our quarterly Venture Monitor webinar will discuss key takeaways from the report. Register here.

Join our team! If you or anyone in your network are looking for private equity news or data opportunities, check out these job postings: Private Equity Reporter (EMEA), Data Analyst

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Turn data into strategy with insights from the Market Outlook Report

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Leveraging the report's 7 key themes, DCG's leading M&A Advisory Team helps automotive professionals successfully navigate 2024 to overcome these current and emerging market issues.

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VC continues to be an incredibly investor-friendly market

Around the end of 2023, there seemed to be a palpable increase in optimism toward the venture market.

Public small caps had a strong Q4, the US economy continued to drive job growth, and consumer sentiment finished the year at a high since July—and higher than any other point since 2021.

Startup valuations felt this boost, too.

VC valuations continue to be the fulcrum on which the market looks for balance. We know that prices paid a couple of years ago were too high, based on incredibly large multiples in the public market. We also know that private markets can't adjust as quickly as public ones.

The market is struggling with valuations of the past.

Continuing to see high top-line valuations in VC is surprising in this market but also somewhat expected. Investors have repositioned to invest in relatively "stronger" companies at each stage, increasing the KPIs necessary to receive funding from the loose deployment mechanics of 2021—and more truthfully pushing for paths to profitability.

However, down rounds are increasing, and because these financings are kept out of the headlines whenever possible, there is an added bias present alongside the strong figures.

Structured deals impact the data in a similar way. High valuations are great until the exit can't support the added investor protections.

The catalyst for a return to strength for VC will be a return of an exit market, which was historically slow in 2023. Until that occurs, VC investors will continue to hold leverage in the market, and their LPs will be pulling the strings.

For a nuanced dive into valuations, our new report tracks prices paid across various stages and sectors in VC and also looks at the increasing protections that are keeping investor-friendly deals flowing.

Download our 2023 Annual US VC Valuations Report.

Best,

Kyle Stanford, CAIA
Lead Analyst, Venture

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Market Updates

The first half of 2023 was a challenging period for private market strategies.

PE, VC, and private debt lagged their historical returns, and only real assets outperformed its 10-year average. PE returned only 6.6% for the year through June, a massive dip from its average return of 16.4% over the last decade.

But the surge in public market returns is a sign of optimism for PE and VC. Our Global Fund Performance Report, with preliminary Q3 data, shows that private market strategies are hinting at signs of life:

read the free report

Real estate and funds-of-funds were the only private market asset classes to improve quarterly returns in Q3.

Real assets halted a positive streak to turn negative. Altogether, industry performance dropped back to 2022 levels of slight growth.

Our Private Capital Indexes, now with data as of Q3 2023, chart out returns across seven private market asset classes and 13 subcategories, including adjusted metrics for use in risk measurement:

read the free report

Thematic Research

US VC Fundraising From an LP Perspective

VC fundraising has become a brutal slog, as the bar for LP backing has risen significantly.

Allocators are prioritizing funds whose predecessors converted returns into cash, remained disciplined during the 2021 market frenzy, and had a thoughtful strategy around fund size increases.

Emerging managers with unique networks and relevant industry experience can stand out from the pack.

Our analyst note outlines expectations going forward, like smaller fund sizes overall and fewer new products that target areas outside of a GP's core strategy:

read the free research

Industry & Tech Research

It was a frosty winter for PE in healthcare services.

Dealmaking declined an estimated 16% year-over-year in 2023, while platform deals hit a seven-year low as acquirers reeled from high interest rates and a prolonged labor crunch.

Healthcare services companies made up 20% of leveraged loan default value in 2023, and large deals remain difficult to finance.

Our new Healthcare Services Report recaps last year's totals and looks ahead to how looming rate cuts and antitrust scrutiny will impact the industry:

read the free report

Enterprise fintech continues to collect more VC dollars than its retail fintech counterpart.

In Q4, deal value for the enterprise vertical was up 20%, reaching $4.7 billion across 304 deals.

According to our new Enterprise Fintech Report, which dives into the startups and key trends driving the space, innovations within payroll tech may be the next big thing:

read a free preview

Webinars & Events

Two new webinars to add to your calendars:

Feb. 20: Our panel of professionals connected to the payments industry, including executives at FedNow and Real Time Payments, will discuss the future of real-time transactions. Register here.

Feb. 28: How do investors assess the outlook for crypto? Our panel discussion will address the complexities and evolving nature of these markets. Register here.

In the News

Our insights and data featured in the press:

How private equity is changing the global soccer landscape. [AP]

VCs have changed their view on Greater China from a couple of years ago. [CNBC]

Biotech hardware is a famously tough-to-predict sector. [Fortune]

When it comes to healthcare and PE, available capital is not always indicative of future dealmaking. [Home Health Care News]

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

ICYMI

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

Market updates

Thematic research

Industry & tech research

Credit research

Coming next week (subject to change)

Fintech's M&A Landscape Unveiled
Gaming Report*
Crypto Report*
Emerging Space: Counter-Unmanned Aerial Systems

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PitchBook News - Down rounds and deal terms

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