PitchBook News - Can PE leave behind its worst impulses?

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The Weekend Pitch

September 19, 2021

Presented by Deloitte

Sen. Elizabeth Warren, shown at the US Capitol on March 1, has been a vocal critic of the private equity industry.
(Chip Somodevilla/Getty Images)

Hello and welcome back to The Weekend Pitch. Adam Lewis here. I should start off by noting that when you read this, I'll no longer be a PitchBook employee. Indeed, Friday was my last day after five excellent years covering the private markets. And I'll be darned if I'm going to waste one last chance to poke the private equity bear before riding off into the sunset. Got an opinion about my story? Hit me up on Twitter at @AdamLewisPI.

Private equity's future hinges on ditching worst impulses

Over the past five years, I have watched private equity firms destroy Toys R Us, cause irreparable damage to the US newspaper industry and profit off hitting the most vulnerable with surprise bills after a trip to the emergency room.

During that same period, I have watched firms pour billions of dollars into tech and ESG, provide rescue financing for struggling companies during the pandemic, and become minority owners in sports franchises within the MLB, NBA and other leagues.

Indeed, PE firms can be a vehicle for economic growth or the grim reaper for an already struggling company. And they've become a flashpoint politically, with industry critics such as Sen. Elizabeth Warren calling for reform while others insist they create jobs.

I still go back and forth at times about whether PE dealmakers provide portfolio companies with the financial expertise they claim to. Was Warren Buffett right when he called out PE executives for juicing returns? Should we really believe that passively investing in an index fund yields better returns for pensions than devoting capital to the private equity asset class?

If either is true, why haven't pensions, endowments and other institutional investors taken their money elsewhere? After all, PE dry powder has reached a global all-time high of roughly $1.3 trillion, according to PitchBook data.

Here's what I know: A number of PE shops have largely shifted away from the leveraged buyout model made famous by KKR in the 1989 book "Barbarians at the Gate." Blackstone has become a real estate juggernaut. Apollo Global Management has become an insurance giant through its merger with Athene. The Carlyle Group is arguably best known more recently for backing Supreme, a trendy clothing line among millennials that it sold last year.

Quote/Unquote

(ALFRED PASIEKA/Getty Images)

"Each next turn of quantum advantage is going to last longer, but I don't see this big bang moment where all of a sudden only a quantum computer can design drugs."

—Matt Ocko, a managing partner and co-founder of venture capital firm DCVC, which is an investor in quantum computing startup Rigetti.

Scientists and engineers may still be years away from developing quantum hardware that would significantly outperform traditional computers. But that's not stopping venture investors from pouring a record amount of funding into the quantum computing space this year.

Datapoints

Global exit value for VC-backed internet-of-things startups reached $30.4 billion in H1, more than double the figure for all of 2020, according to PitchBook data.

Notable IPOs in H1 included smart home tech provider Tuya Smart, which set a record for pure-play IoT VC exit value with its $10.8 billion debut in March. IoT-adjacent exits of information security companies like SentinelOne and Auth0 also added to H1's record total. Read more about the latest in the IoT industry in our recent Emerging Tech Research.

Deal Flow

(zf L/Getty Images)

To harness the full potential of the cloud, companies are increasingly turning to DevOps startups for digital products and tools to help them build, operate and maintain software and IT infrastructure.

Cloudtech and DevOps startups secured $4 billion in the second quarter of 2021, according to PitchBook data, representing a quarter-over-quarter increase of 14.6%. That number includes a $1 billion Series C for MessageBird, the Dutch provider of a cloud communication platform.

Our analysts estimate the market size of DevOps software to be in the range of $88 billion and growing in the high single digits rate.

Why are enterprises investing more aggressively in DevOps? Find out in our recent Emerging Tech Research update.

Did you know ...

(artisteer/Getty Images)

... That Amazon patented the one-click checkout process back in 1997? The patent expired in 2017, opening the door to a new cohort of fintech startups such as Bolt, Fast and PeachPay, which offer faster checkout options.

Our analysts believe that in a world where speed and convenience are increasingly important, there are several areas of opportunity across virtual and in-store checkout processes, one-click payment solutions and renewal features.

To learn more about how fintech startups are capitalizing on specific markets as digitization continues to accelerate, check out our latest Emerging Tech Research report on the subject.

Recommended reads

How the pioneering work of Ingrid Daubechies, the "godmother of the digital image," made our electronic world possible. [The New York Times]

Mark Cuban's latest bet is on a pharmaceutical company that plans to make medications more affordable. But he's not in it for the money. [Texas Monthly]

Some 20 years ago, hedge fund investors made a failed investment in coal mining in Appalachia. It was the workers and the environment that ultimately paid the price. [The Guardian]

Facebook tried to make its platform a healthier place. Instead, the opposite happened. [The Wall Street Journal]

Utilities throughout the US are working to upgrade rooftop power infrastructure. But an outdated grid has resulted in an economic divide when it comes to solar energy. [Wired]

A look at the brutal realities of what it's like to work in a supply chain industry that's been battered by a pandemic, a labor shortage and increased demand. [Bloomberg]

This edition of The Weekend Pitch was written by Adam Lewis and Priyamvada Mathur. It was edited by Alexander Davis, Angela Sams and Sam Steele.

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PitchBook News - Can PE leave behind its worst impulses?

Private equity's future hinges on ditching worst impulses

Quote/Unquote

Datapoints

Deal Flow

Did you know ...

Recommended reads

Older messages

IoT is finally maturing

GP style and PE fund performance

Middle market remains red-hot

Why the DevOps ecosystem keeps expanding

Why fintech is shattering records

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