GP's AI question: Disruptor or disruptee?

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The Weekend Pitch

June 9, 2024

Presented by AlixPartners

(Jenna O'Malley/PitchBook News)

For investors, the conversation around generative AI has rapidly changed.

Questions about the technology's impact that seemed abstract and distant 18 months ago—"Will AI impact the value of my portfolio?" or "How will it shape investment decisions?"—are now real and present.

For fund managers, particularly venture capitalists, the gen AI boom has surely created new investment opportunities. But it also has spawned a whole new set of risks for business models that face being upended by a radical wave of innovation.

Narry Singh, a partner with consulting firm AlixPartners who advises clients on digital transformation, says that GPs approaching a potential deal are increasingly having to ask themselves whether they are buying a disruptor or a disruptee.

I'm Andrew Woodman and this is The Weekend Pitch. You can reach me at andrew.woodman@pitchbook.com or on Twitter @adwoodman.

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Pivot to profitability: PE strategies for tech portcos

The value creation strategies for private equity firms in the technology sector have changed. With inflation and persistently high interest rates, PE-owned tech companies struggle to maintain profitability. This has led to extended hold times and decreased valuations. To navigate this, PE investors need to prioritize profitability. Key considerations include top-line growth, cost optimization, and capital efficiency. These strategies, when deployed effectively, can strengthen portfolio companies and enhance returns for PE firms, especially during longer hold periods.

Explore innovative strategies and practical insights in AlixPartners’ latest report. Whether you’re a private equity firm or a tech portfolio company, discover how to enhance profitability, optimize costs, and drive growth.

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Trivia

VC dealmaking in Australia and New Zealand has slowed significantly, according to PitchBook data. How much deal value was generated in Q1 within the two countries?

A) $1.4 billion
B) $789 million
C) $600 million
D) $1.1 billion

Find your answer at the bottom of The Weekend Pitch!

Promising progress toward a cancer vaccine

(Jacob Wackerhausen/Getty Images)

Developing a cure for cancer is a holy grail of biopharmaceutical research—and some clinical trials have begun to show promising signs, according to our Q1 2024 Biopharma Report. Drug researchers are incorporating new technologies like mRNA into vaccine development.

As well as the major partnerships between pharma and biotech, like Moderna's collaboration with Merck, some venture-backed companies are quietly making notable strides: Corner Therapeutics and Infinitopes are two startups to watch.

Australia, New Zealand's young private markets face strong headwinds

While still in their early stages, Australia and New Zealand's private markets have not been immune to the challenging dealmaking climate—with PE and VC investments in the region slowing in recent years.

Exit value in both countries has yet to exceed the annual amount invested in PE or VC in any year, according to our inaugural 2024 Australia & New Zealand Private Capital Breakdown, sponsored by J.P. Morgan.

But optimism remains. The number of investors and amount of capital available for startups overall has grown significantly in the past decade, while PE dealmaking is still registering above 2020's levels.

For top investors, AI and machine learning still reign

(Just_Super/Getty Images)

AI and machine learning are dominating dealmaking at some of the world's most successful VC firms, according to our latest Emerging Tech Indicator—and it isn't even close when compared to other verticals.

The indicator, which tracks investment activity at a subset of the world's biggest VC firms, found that AI and machine learning accounted for over a third of ETI deal value in Q1, totaling $1.2 billion of $3.2 billion. Meanwhile, crypto continues its resurgence, with a more than 50% jump in deal value quarter-over-quarter.

Quote/Unquote

"I don't think we've emphasized that enough, that possibly they should take on more risk, but this is a low risk operation."

—Britt Harris, investment adviser to Alaska's sovereign wealth fund, arguing that Alaska may be missing out on return while speaking at a meeting of the fund's governing board.

Stay tuned

Keep an eye out for these insights and research reports coming out this week:

Analyst Note: Evaluating the VC Dealmaking Funnel
Q1 2024 Retail Fintech Report
Q1 2024 Germany Snapshot
Q1 2024 US PE Lending League Tables
Q1 2024 Foodtech Report
Q1 2024 US PE Middle Market Report

Trivia

Answer: C)

VC deal value in New Zealand and Australia dropped 25% to $600 million in Q1. You can read more about the region's venture trends in this PitchBook News story.

This edition of The Weekend Pitch was written by Andrew Woodman and Jacob Robbins. It was edited by Alexander Davis and Ron Prichard.

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GP's AI question: Disruptor or disruptee?

Trivia

Promising progress toward a cancer vaccine

Australia, New Zealand's young private markets face strong headwinds

For top investors, AI and machine learning still reign

Quote/Unquote

Stay tuned

Trivia

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