|
|
The Research Pitch |
April 13, 2024
|
|
|
|
|
|
Credit catchup: Competition is heating back up in the loan landscape. On Wednesday, our LCD team will discuss the biggest trends impacting the US leveraged loan and private credit markets. Register here. Come join us: Our news and research teams are hiring! We're looking for a PE reporter (London), a VC reporter, and a senior VC analyst. Comps and valuations: Our industry & tech analysts have published their latest guides on public company valuations, featuring trends in stock performance, revenue forecasts, and much more:
|
|
|
|
|
|
|
Slow pace of distributions in VC is stifling fundraising activity
|
|
At the core of the venture ecosystem slowdown is a lack of exits, particularly large tech public listings.
In Q1,
US VC exit value was just $18.4 billion including the IPOs of Reddit and Astera Labs, which accounted for approximately three-fourths of that total. (While these IPOs made splashes in the media, it is still early to say whether they signal a near-term re-warming of public listings.)
With a lackluster exit market over the past two years, many GPs struggled to convert paper gains to cash distributions. Many institutional investors encountered liquidity constraints amid a prolonged market correction.
|
Under 6% is well below the 10-year average of 17%. |
With low DPI across the board, LPs couldn't recycle distributions as commitments to venture funds. We observed a continued slowdown in Q1 fundraising activity, with a mere $9.3 billion worth of commitments secured across 100 venture funds.
In line with the market narrative last year, many VCs reportedly pushed back their next fundraising timeline, opting to focus on their existing portfolio while being very selective with new deals.
What does higher dealmaking momentum entail? We would first need to see more liquidity.
Despite a few stock market rallies since late 2023, much of the gains were driven by the Magnificent Seven, hopes around interest rate cutting, and AI enthusiasm. We have yet to see a meaningful rebound across the board from the public side.
With hotter-than-expected inflation figures from the most recent quarter, it is unlikely the Fed will start cutting rates until the second half of 2024. And even when rates do start to go down, a question mark surrounds the magnitude and pace of those cuts.
Changes in interest rates impact the valuations of public companies, which are closely monitored by late- and venture-growth-stage startups preparing to go public themselves.
Historically, M&A accounts for the bulk of exit count. With a heightened need for liquidity across the cap table, a gradual convergence on pricing from a founder and investor perspective, an increase in inquisitive actions from strategic buyers such as corporations and PE firms, as well as sector-specific tailwinds, we expect to see an uptick in acquisitions in the coming quarters.
For more data and analysis, download our
Q1 2024 PitchBook-NVCA Venture Monitor.
|
|
|
|
|
|
Continuation fund exits in Q1 showcase how PE has evolved
|
|
Earlier this week, we released the Q1 2024 edition of the
US PE Breakdown. This is our quarterly deep dive, and it's intended for all participants in the US PE ecosystem.
We look at new and emerging trends in buyouts, add-ons, growth equity investing, exits, fundraising, fund performance, and deal valuations.
The industry is two years into a correction from record activity, and participants are paying close attention to signs that the market has bottomed and is beginning to recover.
Here's how we see the rest of the year playing out based on the data we have in hand:
• Two and done? We believe the broader M&A market troughed in Q3 2023, but not the PE buyout market where a recovery has been delayed. Last year was the first year that the PE share of both M&A deal count and deal value declined after eight years of gains. This continued in 2024 with the share of value dropping to 33% in Q1 from 40% in 2023 and a high of 44% in 2022.
• Exits logjam update. Exits hold the key to a sustained PE recovery. GPs are pulling out the stops to return capital to investors, and the downtrend has flattened. The final day of Q1 yielded the fourth-largest PE exit ever with Leonard Green & Partners' $18.3 billion sale of SRS Distribution to Home Depot, raising hopes of more chunky exits to come as corporate buyers no longer fear a recession.
• Continuation funds surge. GPs closed on $78.3 billion in secondaries funds in 2023, and most of that is pointed at providing liquidity to buyout funds. We tracked 27 continuation fund exits in Q1, double last year's first quarter and on pace for more than 100 such transactions as predicted in our
2024 PE Outlook. The successful SRS exit was validation for the continuation funds playbook, as it completed a process just four months earlier.
• Fundraising still resilient. PE fundraising is in line with last year, which itself was a near-record year. There are 10 large open funds with $100 billion in aggregate capital raised that are approaching a final close in the first half of 2024. We foresee an air pocket once that occurs, but for the time being, fundraising totals are surprisingly robust.
For more of our data and analysis, download the
Q1 2024 US PE Breakdown.
As always, we welcome any feedback and observations that you have on the current dealmaking environment.
We will be hosting an industry panel called
Solving the Exits Dilemma at this year's DealMax conference in Las Vegas, so if you are attending, please stop by.
|
|
Enjoy the read! Tim Clarke Lead Analyst, Private Equity |
|
|
|
|
|
|
|
|
The top-performing private capital strategies of last year through Q3 were buyout (+8.9%), infrastructure (+8.3%), and private debt (+7.0%), while VC (-2.7%) and real estate (-2.1%) were in the red. The newest PitchBook Benchmarks have just gone live, featuring IRR quantiles, pooled horizon returns, cash multiples, PMEs, and more, sliced by strategy, vintage year, and geography—including preliminary Q4 data:
- Global
- Venture capital
- Private equity
- Private debt
- North America
- Europe
- Secondaries
- Funds of funds
- Real estate
- Real assets
|
|
|
|
|
|
|
|
The Rise of European Megafunds Five funds accounted for more than half of the roughly €120 billion raised by European GPs in 2023—driving a record year for vehicles over €1 billion. But what's behind the rise of these megafunds? |
|
Our note explores the growth of Europe's extra-large vehicles, including the influence of North American LPs, lower management fees, and a shift to experienced GPs: |
|
|
|
|
|
|
|
|
Lead VC analyst Kyle Stanford on Bloomberg. |
|
|
Our insights and data featured in the press:
- How LPs are viewing the VC asset class and other hot topics in venture. [Bloomberg Technology]
- A funding gap is limiting companies in Southeast Asia hoping to scale. [The Straits Times]
- Crypto VC investors are spending again. [Bloomberg]
- When it comes to revitalizing VC, "we need to see a few more companies go public." [WSJ Pro]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. |
|
|
|
|
|
|
|
Be sure to add these events to your calendar: April 29-May 1: Visit us at DealMAX in Las Vegas, where our lead PE analyst Tim Clarke will lead a session discussing where and when private equity firms will find exit opportunities. Register here. April 30-May 1: Come see us at ILPA Summit Europe in London, where our lead quantitative and fund research analyst Zane Carmean will participate in a discussion on NAV facilities. Register here. May 2: We're sponsoring the NVCA's Annual Leadership Gala in San Francisco, an event that will honor those who have made significant contributions to the VC community. Register here. May 9-10: Visit our booth at the Private Credit Industry Conference in Fort Lauderdale and join our global head of credit research Marina Lukatsky for a discussion on trends in documentation and deal structuring. Register here. |
|
|
|
|
|
|
|
More of our recent research (* - report preview): Market updates
Thematic research
Industry & tech research
Credit research
Coming next week (subject to change)
- European Venture Report
- European PE Breakdown
- Emerging Spaces in Review
- Annual AI & Machine Learning Overview
- Leveraging Take-Private Transactions to Replicate Buyout Investing
- PE Rediscovers Divestitures as a Value Creation Strategy
|
|
|
|
|
|
|
|
|
|
Since yesterday, the PitchBook Platform added:
|
18
VC valuations
|
2100
People
|
675
Companies
|
19
Funds
|
|
|
|
|
|
|
|
|
|
About PitchBook
|
Terms of use
|
Advertise with us
|
Contact
This email was sent to
you
via the
PitchBook Platform.
Do you want to change your email address, get a different edition or unsubscribe? Manage your subscription here.
PitchBook Data Inc., 901 Fifth Avenue, Suite 1200, Seattle WA 98164, United States
© 2024 PitchBook. Win what's next. All rights reserved.
|
|
|
|
|