PitchBook News - VC's AI valuations cage match

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The Daily Pitch: VC

May 27, 2024

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

As mid-market fintech M&A heats up, we've nominated top PE targets

PE has its sights locked on middle-market fintech and payments buyouts for the growth, margins and stability. This has continued to fuel the comeback for enterprise fintech M&A. Our recent analyst note includes a deal-sourcing resource for middle-market firms.

In Q1, companies offering industry-specific payments tools paired with workflow software flew off the shelves.

As corporations plan for a soft landing, large corporate M&A has been on the rise.

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For valuations, it's AI versus the rest of VC

(Drew Sanders/PitchBook News)

Valuations for AI companies have far outpaced those in other verticals, according to PitchBook data. This is despite a VC downturn—but some investors are sounding the alarm over the sustainability of it all, with one likening the current environment to "high-stakes poker."

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Don't sleep on these fast-growing startup hubs

(Chloe Ladwig/PitchBook News)

PitchBook's VC Ecosystem Rankings offer a glimpse into how the winds of change in emerging tech are benefiting startup cities across the globe. Here are some of the fastest-growing hubs on our list:

In Hefei, China, global demand for electric vehicles, semiconductors and solar panels turned this industrial city into an innovation powerhouse.

In Amsterdam, the needs of urban European life helped give rise to food delivery leaders like Picnic and Just Eat Takeaway.

Houston's traditional strength in oil and gas helped make it home to emerging energy companies, from geothermal startup Fervo Energy to renewable natural gas producer Archaea Energy.

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Since yesterday, the PitchBook Platform added:

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VC valuations

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Private capital funds find firmer footing

Some private investment funds found firmer footing at the end of Q3 2023, but the story varied significantly by strategy, data from our 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%.

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VC fundraising may not recover until the end of the decade

(Wong Yu Liang/Getty Images)

Venture capital firms enjoyed a windfall in 2021 and 2022, with assets under management swelling 58% from $2.4 trillion to $3.8 trillion.

But one of the principal drivers of that growth, fundraising, isn't projected to recover to recent highs until well after 2028.

VC firms are forecast to raise less than $200 billion in 2024, a 48% decline from 2021 levels. Fundraising is only expected to grow 2.9% annually through 2028, less than half the rate of other private capital strategies including private equity, private debt and real assets funds.

PitchBook News - VC's AI valuations cage match

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