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PitchBook News - One way to succeed in AI: Think small

Also: Global M&A picks up momentum, demand for virtual health care slows down & more
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The Weekend Pitch
October 27, 2024
Presented by New York Life Investments
(Julia Midkiff/PitchBook News)
AI investors and startups are beginning to realize bigger may not always be better.

Small language models—pared-down versions of the large language models that underpin generative AI technology—are gaining traction and opening investment opportunities in an area dominated by OpenAI and Anthropic.

These models are everything LLMs like ChatGPT and Claude aren’t. They’re considered “small” because they’re trained using less data. They’re cheaper to run and can be deployed on local devices. They don’t have access to an internet’s worth of knowledge, but what they lack in breadth they make up for in depth.

Large language models are struggling to gain adoption among large enterprise customers concerned with privacy, speed and cost. SLMs are finding a footing by offering more secure and specialized generative AI applications.

I'm Jacob Robbins, and this is The Weekend Pitch. You can reach me at jacob.robbins@pitchbook.com or on X @JacobERobbins.

In June, I reported on how startups can survive the new AI age. Nearly everyone I spoke to urged startups to fill the gaps the larger players can’t. Investors, founders and executives now say SLMs are key to hastening enterprise AI adoption and paving a path forward for survival against incumbents.
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A message from New York Life Investments  
Prepare to pivot: Global Private Markets Outlook
With over $13 trillion in assets globally and 62% growth in the last decade, private markets still represent a small fraction of global capital markets, suggesting substantial room for expansion in key asset classes such as private equity, private credit, real estate, and real assets.1

Consistently high interest rates create a domino effect on liquidity, effectively freezing portfolios with private investment exposure. As economic activity slows, central bank rate cuts can unearth a generational opportunity in private market allocation. In fact, even in a higher-rate environment, institutional investor allocations have grown, further underscoring private-market potential. New York Life Investments’ skilled team leverages deep industry insights and a methodical approach. Discover how changing economic conditions could present a unique opportunity in private market allocation.

Access report: Global Private Markets Outlook

1: “Global Private Markets Review 2024,” McKinsey & Company, March 28, 2024.
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Trivia

This week, two co-heads at Blue Owl Capital led a group of investors in the purchase of a majority stake in an NHL hockey team. Amidst a surge in PE investment in major sports, which hockey team will see this set of PE investors take over?

A) New York Islanders
B) Tampa Bay Lightning
C) Seattle Kraken
D) Anaheim Ducks

Find your answer at the bottom of The Weekend Pitch!
 

Global M&A market is
picking up steam
(John P Kelly/Getty Images)
The M&A recovery is hitting its stride, according to our Q3 2024 Global M&A Report, sponsored by Liberty GTS, RSM and RBC Capital Markets. The first three quarters saw a marked acceleration in M&A activity—total deal value rose more than 27% from last year, and deal count increased over 13%.

And PE is finally getting in on the action, benefitting from a "stealth" rate-cut cycle as big banks have returned to the deal lending market. PE's share of M&A deal value climbed to over 41% year-to-date, bouncing back to its five-year average after slipping in 2023.
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Demand for virtual-first
health care declines

(Solskin/Getty Images)
Publicly listed digital health and healthcare IT companies are underperforming, with virtual care and remote patient monitoring standing out as segments hit the hardest.

Providers of direct-to-consumer services are performing worse than companies offering B2B services like electronic health records and clinical information databases. Despite underperformance, an IPO window could open up for healthtech startups in 2025.

Our Q3 2024 Digital Health & Healthcare IT Public Comp Sheet and Valuation Guide tracks stock performance, valuations, revenue growth, and EBITDA margins for key publicly traded companies.
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Quote/Unquote

(Stefan Cristian Cioata/Getty Images)
“There is a long, secular tailwind behind this category, and there is a momentary opportunity to have a strong vintage year for early partners. This is an underbanked area, and there is simply not a lot of serious money coming into it.”

—Charles Tapp, a general partner at Vetted Capital, speaking about investing in pet-focused startups. Read more about the launch of Vetted’s first fund here.

Stay tuned

Keep an eye out for these insights and research reports coming out this week:
  • Q3 2024 Carbon & Emissions Tech report
  • Analyst Note: Infrastructure Funds Fuel the Energy Transition
  • Analyst Note: APAC Fintech Overview
  • Analyst Note: Crypto as an Incentive Mechanism for Decentralized AI Operations
 

Trivia
Answer: B

The Tampa Bay Lightning will see a change in ownership after the deal with Doug Ostrover and Marc Lipschultz of Blue Owl Capital, the team announced Thursday, Oct. 24. The news was featured in The Daily Pitch news briefs on Friday, Oct. 25. Check out more PE involvement in major league sports via our Private Equity Sports Investment Dashboard.
 

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

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