New VC era dawns: The Fed's recent rate cut is expected to gradually boost the constrained VC exit market, easing liquidity pressures on LPs and improving startups' access to capital. Our report breaks down the macro landscape and evaluates historical VC performance. Read it here.
LLM agents: Want an automated agent to book your travel and do your shopping? We dive into the nascent segment and provide an outlook for what's next. Read our brief.
More innovation: Our quarterly AI report spotlights areas like code retrieval, GenAI for banking, and sovereign AI, in addition to lots of new data. Read a free preview.
Emerging Tech Indicator: AI was also the big story in a new report that focuses on early-stage activity of the world's top VCs, where Q2 activity soared. Read more. |
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Why rate cuts are a toast to whiskey investing
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With rate cuts on the way, investors move their money out of safe, low-yield instruments like Treasury bills and into assets that promise higher returns. As confidence grows, the search for better returns leads directly to "alternative" investments such as whiskey. This surge in demand often leads to bull markets, creating more wealth and, in turn, boosting luxury spending – including on whiskey.
That’s not all. Whiskey is the perfect complement to stocks and bonds with its proven track record for appreciation, bond-like stability, and low correlation with the stock market.
Vinovest will help you select the casks, store them, and sell them after several years of aging. A recent whiskey sale resulted in a 30.7% gain for Vinovest clients.
Get started with this exclusive offer |
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Should VC investors pick a lane and stay in it?
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"Stay in your lane" is a phrase that, once you look past the condescending overtones it can occasionally be delivered with, may well offer some worldly wisdom.
Developing worthwhile expertise in a domain often requires a disciplined and focused effort.
In VC investing, this phrase applies to the much-argued generalist-versus-specialist debate, particularly as it relates to the scope of technology verticals included in an investor's investable universe.
Specialists believe that a deep understanding of a narrow set of markets and technologies enables them to better assess a startup and its founder's prospects. On the other hand, generalists argue that there are many commonalities in analyzing startups across tech verticals and that the increased flexibility allows them to be nimbler when opportunities arise.
To help settle this debate, we took a data-driven approach to answer the question: Should VC investors pick a lane and stay in it?
To answer this, we performed an analysis of VC deal outcomes that were split into two groups: deals where the lead investor had high domain expertise in the target company and those where the lead investor had low domain expertise.
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| Click for a bigger version of this chart on exit outcomes. |
Domain expertise was based on the degree of similarity between a target company and VC-backed companies that the lead investor had previously invested in.
Given the complexities involved in quantifying similarity between pairs of companies, we employed an open-source LLM trained on massive amounts of data to understand both natural language and semantic similarity. We then fine-tuned this model on VC-backed company descriptions in the PitchBook Platform.
Our key finding was that companies in VC deals where the lead investor had high domain expertise had a 1.2x greater probability of a successful exit (acquisition or IPO) than those where the lead investor had low domain expertise.
However, the answer to the original research question was not as straightforward as that finding would suggest. In particular, we found that the apparent advantages of domain expertise varied meaningfully across verticals.
The AI & ML and fintech verticals stood out as two exceptions to the conclusion that domain expertise has been associated with better exit outcomes. On the other end of the spectrum, the results suggest that domain expertise is especially important in the healthtech and pharma verticals.
For a more detailed explanation of the methodology and additional findings, please download our free analyst note:
Should VC Investors Pick a Lane and Stay in It?
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Middle market buyouts are on the path to recovery
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Our Q2 US PE Middle Market Report provides the latest signpost that a gradual recovery in PE dealmaking is now underway, although it skews more to buying than selling.
As a reminder, this report tracks buyout activity only. Middle market dealmaking is defined as buyouts of companies with an enterprise value of between $25 million and $1 billion, or about $500 million in equity contribution at the top end.
This segment of the dealmaking market accounted for just shy of 60% of all buyout value in 2023 and it is where most buyout professionals and bankers spend their time sourcing deals. Measured by count, it represents more like 70% of the buyout market.
Key takeaways from this quarter's report include:
• Middle market buyout activity increased 12% YoY in H1. This is a bit stronger than the overall buyout market, which rose by a more modest 5% in value and 9% in count.
• Exit activity was flat in H1 on a YoY basis, reflecting a continued sellers' strike among sponsor owners, at least in this size segment. In this regard, middle markets lagged the overall market.
• Fundraising for middle market funds slowed, with fewer closes in H1 and a lower value of funds closed.
• Valuations stepped up. This may be short-lived as higher-quality companies have been leading the way. We believe that as buyout activity broadens, it will inevitably include lesser-quality companies and cause an interruption in the upward deal multiples trend.
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| Strength in public small caps can impact private companies. |
Speaking of those valuations, our previous middle market report flagged the fact that public small caps had been trapped at a record low relative to large caps, and how any trend reversal could be a catalyst for private market values.
That dam finally broke in July when the small-cap Russell 2000 index rose by 10.1% while the S&P 500 declined by 19.6%, its best two-week streak relative to large caps in 38 years. The Russell index has shed approximately one-third of those gains but has been holding its own ever since.
Relative strength in public small caps can provide a "halo effect" for late-stage private companies—their closest cousins—prompting would-be sellers to embark on an M&A process. Let's hope this trend continues.
Download our free US PE Middle Market Report.
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Enjoy the read!
Tim Clarke
Lead Analyst, Private Equity |
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Greater China Private Capital Breakdown
China's private markets are experiencing a significant slowdown, with 2024 activity on pace for decade lows.
Heightened macroeconomic challenges, regulatory shifts, and elevated US-China tensions are among the factors that have taken a toll on PE and VC dealmaking.
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Exit opportunities for VC- and PE-backed companies are currently limited, leading to a more active secondaries market. The pullback of North American institutional investors is another notable trend.
For more data and analysis, the report is available in English, traditional Chinese, or simplified Chinese:
Read the free report
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Pharmatech Report
Contract research organizations are finding success in an otherwise stagnant pharmatech landscape.
These providers of research and clinical services raised $953 million across 35 deals in Q2, driven by demand for next-generation therapeutics development as well as the adoption of AI and precision medicine in clinical trials:
Read a free preview
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E-Commerce Report
As generative AI sweeps across the VC landscape, the e-commerce sector is buying in.
Q2 investment in product search technology nearly tripled on a quarterly basis, as companies focus on enhancing customer experience.
In a space where personality and name recognition have major impacts on product discovery, virtual influencers could be the next hit:
Read a free preview
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We hope to see you at these upcoming events!
Sept. 25: We invite you to join PitchBook, J.Thelander Consulting, and Wilson Sonsini for a live discussion of compensation trends at VC and PE firms worldwide. We'll also be taking questions from our viewers. Register here.
Oct. 2: Join us for a live discussion on the intersection of defense tech and venture capital, featuring insights from a panel of industry professionals. Register here.
Oct. 2: PitchBook will be at UKTIN's upcoming telecoms conference in London, where our lead EMEA analyst Nalin Patel will discuss key investment trends. Deep tech startups and tech investors can register here to attend.
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Our insights and data featured in the press:
- About $91 billion was raised from 59 private credit funds in the first half of 2024. [Bloomberg]
- Mobility tech funding was up in Q2, led by autonomous driving startups. [Fortune]
- PE is growing tired of point solutions for healthcare providers. [Axios Pro]
- In the first half of this year, US VCs participated in a third of Europe's growth rounds. [Sifted]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.
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More of our recent research (* - report preview):
Market updates
Thematic research
Industry & tech research
Coming next week (subject to change)
- Sustainable Investment Report
- Global Private Debt Report
- Global Real Estate Report
- Global VC Ecosystem Rankings
- Digital Health Report & Annual Overview*
- Data Analytics Report*
- European investment in climate tech
- Digging into soil health
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Since yesterday, the PitchBook Platform added:
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15
VC valuations
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2074
People
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906
Companies
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24
Funds
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