PitchBook News - What you need to know: SPACs and ESG

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The Research Pitch

May 1, 2021

ESG: It's Everywhere

This week, we published a note called ESG and the Private Markets, an educational piece meant to help investors understand the background of the risk factor framework, what it means, and how and why private markets participants are incorporating the approach.

Not only are LPs becoming more insistent that asset managers integrate sustainability into their investment thinking, but a variety of regulators around the globe are insisting that GPs back up any claims that they're doing so.

To put ESG into specific context, the paper discusses the E, S, and G separately, though they can become blended and difficult to untangle.

Poor governance (G), for example, could lead to decisions that cause worker strikes (S), which could interrupt safety protocols and lead to an environmental disaster (E). Thus, a shortsighted decision can lead to consequences that were completely avoidable.

ESG is about framing decisions to include the consideration of these risk factors that don't lend themselves to financial statements but that are material to the sustainable operation of a company.

Investors who have dismissed ESG as something of a tree-hugging exercise are missing the point and should take a second look to ensure that they're not actually abandoning their fiduciary duty by ignoring these material risks.

And if the "should" isn't enough, LPs and governments are taking action to pressure private asset managers to do so:

Read the full analyst note on ESG and the private markets

Feel free to email me or our institutional research team with any feedback or questions.

Best,

Hilary Wiek, CFA, CAIA
Lead Analyst, Fund Strategies and Performance

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SPAC Market Update: Q1 2021

The initial flurry of SPACs in 2020 seemed like a flash in the pan at first, but it looks like these vehicles are here to stay.

The unprecedented uptick in SPAC IPO volume in 2020 and the first quarter of 2021 has created a dedicated pool of more than $200 billion to invest in privately-owned companies—and that figure doesn't even include the PIPE rounds that accompany many of these acquisitions.

While we saw a few indicators of waning enthusiasm for SPACs near the end of 2020 with a handful of downsized SPAC IPOs, this development looks to be just a blip. SPAC IPO activity exploded in 2021, with aggregate capital raised already surpassing the total in 2020 by 19.8% in just over one quarter.

Recent SEC scrutiny regarding SPACs has led to uncertainty around any potential accounting treatment of warrants, which seems to have caused a temporary halt on new IPOs; however, as it stands now, we believe SPACs still fill a gap in the market, will adapt to any changes, and remain a primary option for companies looking to go public.

In our past research, we analyzed individual SPACs and more qualitative market dynamics underlying the popularization of the strategy.

In this report, now that we have more robust sample sizes in our SPAC data, we layer our aggregate datasets onto our previous research to gain a sense of the entire market's scale:

Read the Q1 2021 SPAC Market Update

Feel free to email me or our institutional research team with any feedback or questions.

Best,

Cameron Stanfill, CFA
Senior Analyst, VC

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Market Updates

Our Q1 European Venture Report showcases the key trends that have defined Europe's VC market over the first three months of the year, including a boom in nontraditional investor participation, robust dealmaking in fintech, and a solid start to VC fundraising despite continued travel restrictions.

European venture capital started 2021 off strongly, ultimately reaching an all-time quarterly high in Q1: €17.6 billion was invested across 1,907 deals, and VC activity on the continent is expected to break annual records as the year progresses:

read the report

Thematic Research

Creating a Consumer-Centric Patient Payment Ecosystem

The rise of high-deductible health plans has exposed the shortcomings of existing healthcare payment systems—and it's one of the many drivers behind the growth of the patient payment market.

From improving the process of verifying insurance coverage to estimating patient obligation, startups are developing several technology-based approaches to improve the status quo. VC funding for patient billing providers is on the rise, with more than $270 million raised in Q1, and the US patient payment market is estimated to reach $15 billion by 2027.

Our latest healthtech note explores the gaps in the patient billing system and the role technology and private investors can play in bringing about change:

read the note

Webinars & Events

How does autonomous finance help consumers better manage their financial health and performance?

What are the key challenges facing the technology?

Our fintech experts gave the answers and discussed much more in this week's webinar: watch the on-demand replay

Save the date for these upcoming engagements:

May 5: Our quarterly Venture Monitor webinar will feature panelists from Silicon Valley Bank, Secfi and NVCA in a discussion around our latest report. Register here.
May 6: Analysts Wylie Fernyhough and Rebecca Springer will highlight M&A trends and opine on what to expect going forward. More details.
May 19: Our EMEA analysts will discuss the latest trends in the European PE and VC markets and look at how their 2021 predictions are faring. Register here.

Deal Commentary

Mobility analyst Asad Hussain weighs in on U.S. Labor Secretary Marty Walsh telling Reuters that "in a lot of cases gig workers should be classified as employees":

"The Department of Labor's decision could have significant consequences for ridehailing and delivery apps that have built their entire business models around the use of contracted labor.

"Classifying drivers and couriers as employees will constrain profitability and could lead to higher ridehailing and delivery costs being passed on to consumers.

"This development could also have implications for the future of venture capital funding. In 2020, ridehailing and delivery startups raised a combined $25 billion in venture funding.

"In our view, apps such as Alto and Revel that rely on fully-employed drivers could be better positioned to weather this storm."

Asad Hussain

Senior Emerging Technology Analyst
Mobility Tech

VC analyst Joshua Chao, whose coverage areas include biotech and life sciences, weighs in on Exscientia's SoftBank-led Series D this week.

"Full-stack AI-enabled drug discovery companies like Exscientia have seen robust dealmaking lately, as they aim to combine artificial intelligence & machine learning with key elements of the drug discovery process.

"The wide-ranging breadth of many drug libraries and the sheer number of unmet clinical needs has pushed scientists to streamline this process through algorithmic and digital augmentations.

"With over 20 projects in development and two drug candidates in clinical trials through various partnerships, Exscientia is full steam ahead in expanding its drug pipeline and AI offerings to develop joint ventures with new biotech partners.

"In addition to leading the $225 million of Series D venture funding with follow-on investors like Novo Holdings and Blackrock, among others, SoftBank is providing an additional $300 million equity commitment from its Vision Fund II that can be drawn at Exscientia's discretion.

"This is also not SoftBank's first foray into AI-enabled, data-driven drug discovery. It also invested in Insitro's $400 million Series C earlier this month and led XtalPi's $319 million Series C in September 2020.

"Various elements of the traditional drug discovery lifecycle are being scrutinized recently. Supply chain disruptions and challenges related to the COVID-19 vaccine rollout have forced the industry to reexamine every step of the drug development process.

"Last year, the largest equity financing within biotech & pharma was a $755 million Series B round in San Diego-based Resilience, which is utilizing automation and custom manufacturing capabilities to revolutionize the drug manufacturing process.

"Much of the momentum from 2020's record $28.5 billion in biotech VC dealmaking has continued to drive investment in 2021 and the industry is showing no signs of slowing down."

Joshua Chao, Ph.D.

Analyst
Venture Capital

In the News

Our insights and data featured in the press:

Why might M&A opportunities be fueling interest in digital banking? Analyst Robert Le explains in the context of a recent funding flurry. [Forbes]

As Tikehau launches its first SPAC, analyst Dominick Mondesir notes that oversupply in the US could have many blank-check vehicles looking elsewhere. [Private Equity News]

Insights from analyst Nalin Patel drive this look at how European startups are poised to break records this year. [Business Insider]

If you're a media member interested in interviewing our analysts, contact our PR team.

ICYMI

Highlights from our research content published over the past few months:

Market updates

Thematic research

Emerging Technology Research deep dives

Coming next week (subject to change)

Q1 Global M&A Report
Updated 2021 PitchBook Benchmarks
ETR: Information Security

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PitchBook News - What you need to know: SPACs and ESG

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