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PitchBook News - AI froth boils over at Milken

Plus: The latest in global fund performance, LPs weigh exposure to China, charting private capital AUM & more
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The Weekend Pitch
May 12, 2024
Presented by Masterworks
(Jenna O'Malley/PitchBook News)
AI was the obsession du jour at the 2024 Milken Institute Global Conference in Beverly Hills this week. Investors—fed up with the extortionate going rate for pre-revenue and even pre-product startups—grumbled about a bubble.

"It's like people didn't learn anything from the last cycle," an investor at a fund-of-funds told me.

"Valuations have just gotten insane," vented a growth-stage investor over lunch.

Money managers sang a different tune on stage. Even as GPs sounded off on the sidelines, investors and allocators universally touted the technology's transformative potential across three days of panels.

This is The Weekend Pitch, and I'm Rosie Bradbury. You can reach me at rosie.bradbury@pitchbook.com or @_RosieBradbury on X.
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Trivia
(ispyfriend/Getty Images)
US investors are backing away from the Chinese venture market. In 2023, what share of total Chinese VC deal value did deals with US investor participation make up?

A) 11.5%
B) 22.3%
C) 41.7%
D) 39.8%

Find your answer at the bottom of The Weekend Pitch!
 

PE, debt pull fund performance further into positive territory
Some private investment funds found firmer footing at the end of Q3 2023, but the story varied significantly by strategy, data from our latest Global Fund Performance Report shows.
  • The good: Private equity led with a 10.4% one-year IRR, followed by private debt at 9.8%. Real assets notched 8.4% in the period, helped by steady returns in infrastructure funds.

  • The bad: VC remained a laggard with a -7.7% one-year IRR as the IPO market stayed quiet. Real estate recorded a -2.6% return, hurt by distress in the office and multifamily sectors. Funds-of-funds, whose performance tends to trail behind other strategies by a quarter or two, came in at -2.1%.
 

Can the good times roll for private capital?
(OrleiJr/Getty Images)
Private markets now control $14.7 trillion in AUM after growing at an annualized rate of 12.8% from 2012 to 2022, vastly outpacing publicly traded stocks and bonds.

High interest rates and an exit drought are challenging that growth, but LPs appear bullish on private allocations. Our recent analyst note explores how private capital AUM could expand over the next five years.
 

VC-backed companies narrowly guard valuations
Though median VC valuations rose in Q1 across all stages, those prices were only modestly higher than companies' prior valuations, according to our latest US VC Valuations Report, sponsored by Morgan Stanley at Work.
  • Companies are also exiting at low step-ups and occasionally taking large haircuts—as was the case in Reddit's IPO, which priced about 40% below its $10 billion valuation from 2021.

  • In the growing secondary markets, shares are trading at a 28% discount on average.

  • Flat and down rounds continue to rise as a share of all VC deals, hitting 27.4% in Q1.
 

Quote/Unquote
(Qi Yang/Getty Images)
"AI has existed and been around for a really long time, it's just now gone mainstream and captured human imagination."

—Prukalpa Sankar, co-founder of data oversight startup Atlan, speaking about the company's recent $105 million Series C and the growing popularity of similar startups driven by generative AI.
 

Stay tuned
Keep an eye out for these insights and research reports coming out this week:
  • Q1 2024 Supply Chain Tech Report
  • Q1 2024 European VC Valuations Report
  • Q1 2024 Infrastructure SaaS Report
 

Trivia
Answer: A)

Deals with US investor participation accounted for 11.5% of Chinese VC deal value in 2023, a far cry from 2018 when they made up 41.7% of deal value. Read more about The University of Southern California and other LPs' private market exposure to China.

This edition of The Weekend Pitch was written by Rosie Bradbury and Jacob Robbins. It was edited by James Thorne and Samantha Steele.

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