PitchBook News - How startups can survive the AI washout

Plus: Take our survey on sustainable investing, a new look at pharma research, the path forward for LPs & more
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The Weekend Pitch
June 30, 2024
Presented by Masterworks
(Jenna O'Malley/PitchBook News)
The Roman philosopher Seneca once said "luck is what happens when preparation meets opportunity"—and I had just gotten lucky. My first day covering emerging technology at PitchBook was about a week before OpenAI released ChatGPT into the wild.

It seemed like a true status quo disruption was upon us. Generative AI would upend everything, and a new era of competition was dawning.

Google parent Alphabet was so shaken by the release of OpenAI's ChatGPT that CEO Sundar Pichai reportedly triggered a "code red" to turbocharge the company's AI initiatives. Apple appeared asleep at the wheel with few whispers of its AI ambitions. A crop of AI-powered startups rose in rapid succession, challenging big tech's dominance in cloud computing, search and content creation and editing.

More than a year and a half later, the big tech incumbents appear more entrenched than ever before. Generative AI hit like a wave—but in turn lifted few boats. The empire struck back, hard.

Apple's AI suite will roll out this fall. Microsoft looms large over OpenAI. Adobe and Google, despite a slow start, have rushed to integrate AI tools into its services, threatening well-funded prominent startups. Companies like Nvidia, OpenAI, and Anthropic have been the biggest winners outside of the incumbent giants.

I've reported on momentum slowing and investors questioning the sustainability of the current moment. For this article, I set out to speak to VCs about the path forward and the playbook startups should employ to survive.

I'm Jacob Robbins and this is The Weekend Pitch. You can reach me at jacob.robbins@pitchbook.com or @_JacobERobbins on X.
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All thanks to Masterworks, the award-winning platform for investing in blue-chip art. To date, every single one of Masterworks’ 23 sales has yielded a net positive return. With 3 illustrative sales, Masterworks investors have realized net annualized returns of 17.6%, 17.8%, and 21.5%.

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Shares of each offering are limited, but PitchBook readers can skip the waitlist with this exclusive link.

See important Reg A disclosures at masterworks.com/cd
 
 

Have your say: Take our survey on ESG and impact investing

(Gocmen/Getty Images)
We've launched our revamped 2024 Sustainable Investment Survey to take a closer look at what investors are doing and why—including the current events influencing sustainable investing practices.

We would also like to hear what the term "ESG" means to private market participants and whether concessionary returns are implicit in impact investing. We invite you to share your firm's approach.

All who complete the roughly 10-minute survey will have the opportunity to enter a prize drawing, and for each completion, PitchBook will make a donation to World Central Kitchen. Take the survey here.
 

Trivia

The digital health vertical, a pandemic-era darling, has struggled to reach the heights it did two years ago. In a sign that the vertical is easing into a new normal, deal value ticked up slightly to 6.2% this previous quarter. How much deal value was generated in Q1 2024?

A) $779 million
B) $1.4 billion
C) $891 million
D) $1.1 billion

Find your answer at the bottom of The Weekend Pitch!
 

Introducing pharmatech VC and PE research

(Phuchit/Getty Images)
We're launching new coverage of the pharmatech sector, which includes contract organizations and outsourcing services for drug research, development and manufacturing. Kazi Helal, Ph.D., PitchBook's senior analyst for biotech, details the market landscape and dealmaking in our inaugural report on the space.
  • The sector, traditionally dominated by a few large companies, now sees PE and VC investors discovering opportunities and leveraging post-pandemic biomanufacturing needs.

  • Dealmaking in the pharmatech industry has moderated from post-pandemic peaks and faced continued pressure in 2024, with PE investors focusing on consolidating mature companies and VCs launching the future of pharmatech.

  • Investors are finding opportunities in novel technologies like generative AI for drug discovery and clinical trials, as well as maturing ones like cell and gene therapies—where high demand creates the need for scalable manufacturing.
 

Mapping the path forward for LPs

(Weiyi Zhu/Getty Images)
Shifting macroeconomic environments can make room for opportunities for LPs. To help identify some of those potential investments, we look at key risk and return drivers across private markets in the context of that wider environment and provide potential paths forward.

Our latest report, Q2 2024 Allocator Solutions: Private Market Opportunities Midyear Update, dives into the macro dynamics at play across PE, VC, private credit and real estate.
 

Quote/Unquote

(Matt Anderson Photography/Getty Images)
"Our typical fund size, we need to be really focused on working with companies that have a complete business model. There isn't going to be a lot of blind alley or sort of, 'Oh, we were right, but a year or two early.' We need to wait for sales."

—Rackhouse founder Kevin Novak, talking to PitchBook News about the early-stage investor's latest venture vehicle, a $45 million fund.
 

Stay tuned

Keep an eye out for these insights and research reports coming out this week:
  • June 2024 Global Markets Snapshot
  • 2024 Carbon and Emissions Tech Overview
  • Q2 2024 PitchBook-NVCA Venture Monitor First Look
  • Q2 2024 US PE Breakdown First Look
 

Trivia

Answer: D)

In Q1 2024, the digital health vertical generated $1.1 billion across 77 deals. You can read more about those deals, the trends and how generative AI may re-energize the space in PitchBook's latest emerging tech research.

This edition of The Weekend Pitch was written by Jacob Robbins. It was edited by James Thorne and Ron Prichard.

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