| | | | | The Research Pitch | December 31, 2022 ![]() | | | | | | |
First off, we want to thank you for helping our research team achieve a record year for engagement. We exceeded our ambitious readership goal for 2022 and have an even bigger target for 2023.
Our team will be off for a few more days, but for this newsletter edition, we asked our analysts to highlight their favorite research from the past year.
Please enjoy a recap of some of our best work and have a happy new year!
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Down Rounds, Impacts, and Exit Opportunities
By Kyle Stanford, CAIA, Senior Analyst, US Venture Lead
The swift decline of the public markets has left many private startups with no exit opportunities in sight.
And in such an inhospitable market, many companies will be forced to consider taking on new funding at depressed valuations.
But what do down rounds really mean for founders and investors in the long term?
|  | | See a large version of our down round funnel in the research | | | |
Our research note dives into the data on post-down round exits, difficult IPO markets, and investment returns to determine what's in store for companies taking down rounds in the current market.
The data might not show what you'd expect:
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Healthcare Services Report (Launch)
By Rebecca Springer, Ph.D. Senior Analyst, Healthcare
Healthcare services accounts for roughly 10% of US PE deal activity by value.
Our newly launched Healthcare Services Report is your quarterly guide to navigating PE investment trends in this critical industry.
|  | | The report has dozens of charts on PE activity by segment. | | | |
In the report, we unlock deal trends across 26 provider categories—from applied behavioral analysis to home health—and provide deep-dive analysis into the key market, reimbursement, and technological themes shaping PE strategies.
Although dealmaking faces headwinds in the form of staffing shortages and weak syndicated loan markets, PE deal activity in healthcare services has remained resilient, especially in the middle market:
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ESG, Impact, and Greenwashing in PE and VC
By Anikka Villegas, Analyst, Fund Strategies & Sustainable Investing
The increasing polarization around sustainable investing, and, specifically, the growing negative sentiment toward ESG, is abundantly clear.
Now more than ever, the number of opposing opinions on what sustainable investing programs should look like—or if they should even exist at all—necessitate clarity around what it means to "do" ESG and Impact investing.
This note explores why the various philosophies of ESG and Impact require different implementation strategies and thus result in different-looking portfolios. It also helps readers discern what is greenwashing versus a difference in philosophy.
In coming years, investors are unlikely to rally around one philosophy of ESG or Impact to the complete exclusion of all others, so understanding each philosophy's strengths and deficiencies will result in more productive conversations:
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Hashing Out the Future of Encryption Algorithms
By Brendan Burke, Senior Emerging Technology Analyst
In the long run, the digital defenses we feature today will be rendered irrelevant by breakthroughs in computing power.
This offers a clear priority for forward-thinking vendors and investors in this space to align with.
|  | | Click to access the full encryption market map. | | | |
Our note on the future of encryption sums up key innovation themes and helps set expectations for frontier technologies in information security, including privacy-enhanced computing and homomorphic encryption.
Since publication, our conversations reinforce that there's burgeoning demand from regulated customers for innovation in this space. Also, vendors are making material progress in computational efficiency to make privacy-enhanced computing ubiquitous in the medium term:
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PitchBook's Guide to Your Pitch
By Hilary Wiek, CFA, CAIA, Lead Analyst, Fund Strategies & Sustainable Investing
In a year when fundraising has gone from bad to worse for emerging managers, many are looking for advice.
This guide, technically from late 2021 but still very relevant, helps managers assess their pitch and prepares them for the tough questions.
It was written by someone with over 20 years of institutional investment experience who has evaluated and allocated to hundreds of investment managers.
|  | | 'Pricing' is one of the six Ps to consider when fundraising. | | | |
By thinking through the six Ps—people, philosophy, and a few others—GPs can go to market with confidence that they've thought through all aspects of their firm.
It goes beyond just investment strategy into areas like succession plans, how the team is incentivized, and other lenses that inexperienced managers often neglect before seeking out investors:
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How Inflation, Monetary Tightening, and Volatility Are Impacting PE and VC
By Andrew Akers, CFA, Senior Quantitative Research Analyst
In a flashback to May, much of the description for this research still resonates:
"Inflation is running much higher than the Fed's target of 2%, short-term rates are rising, and market expectations for further tightening are increasing."
"Along with supply chain constraints and geopolitical turmoil, these dynamics have caused a decline in valuations and a rotation away from stocks with high implied growth rates."
"Most major stock indexes are down by double digits since the start of the year, and the performance of newly public VC-backed companies suggests a disconnect between the private and public markets that's difficult to ignore."
As the market first began to turn, this reactionary note explored how the macro environment affects private markets and the economic scenarios that could play out:
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Quantitative Perspectives: When the Tide Goes Out
By Andrew Akers, CFA, Senior Quantitative Research Analyst
After 10+ years of easy money, loose credit policy, and consistent economic growth, macroeconomic conditions have started to quickly deteriorate in the US and globally.
This backdrop brings to mind the famous Warren Buffett quote: "Only when the tide goes out do you discover who's been swimming naked."
|  | | Click to dive deeper into our quantitative recession model. | | | |
Slowing economic growth, a sharp increase in short-term interest rates, and tightening credit and liquidity conditions will likely lead to a challenging period ahead for investors.
Our quantitative report breaks down the deteriorating macro backdrop—including a 65% chance of a recession—and explores how those dynamics could affect the PE market next year:
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Introducing Venture Growth
By Kyle Stanford, CAIA, Senior Analyst, US Venture Lead
One of the biggest shifts in the VC market over the past few years has been an expansion at the late stage.
As VC-backed companies stay private for longer and collect more and more capital along the way, we've found that the relatively smaller startups in our late-stage dataset are considerably different from the larger ones.
|  | | Venture growth: 20% of deal value, 4% of deal count. | | | |
To better address the variations and trends within the late stage, we have created a new category—venture growth—defined as funding rounds Series E+ or financings involving companies at least seven years old that have raised at least six VC rounds.
Our research note details how the new stage has changed over the last decade and explains how its risk profile differs from other stages:
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Hydrogen Fuel Cells Back in the Spotlight
By Jonathan Geurkink, Senior Emerging Technology Analyst
Once viewed as the future of green cars, hydrogen fuel cell tech had fallen by the wayside as lithium-ion batteries gained traction as the primary means of powering electric vehicles.
VC investment activity mirrored that trend.
But new applications are emerging in trucking, aerospace, warehousing, and marine vessels, sectors wherein the climate-friendly fuel has the potential to outperform its gas and electric peers.
The Inflation Reduction Act of 2022 could prove to be another tailwind for the industry, as it includes significant subsidies for green hydrogen production.
Our research segments where hydrogen and battery technologies fit into the mobility tech landscape based on simple physics around weight and power density, while also pushing back on the all-or-nothing arguments of fuel cell detractors:
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2022 Sustainable Investment Survey
By Hilary Wiek, CFA, CAIA, Lead Analyst, Fund Strategies & Sustainable Investing
While there is a strong commitment to both ESG and Impact investing globally, we've seen an increasing politicization of ESG—particularly from skeptics of the movement.
Our report covers all perspectives on the state of sustainable investing, leveraging responses from over 550 LPs, GPs, and their advisors.
One notable takeaway: the percentage of respondents who have no plans to incorporate sustainable investment practices nearly doubled over 2021, mainly driven by North America-based LPs.
|  | | The top three areas of focus for Impact investing. | | | |
There's much more featured in the report, which showcases unique datasets illuminating sustainable investing practices, priorities, and challenges.
We break down data by region and respondent type, and also dive deeper into the perspectives of allocators and VC, specifically:
Download the free research
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Mega-Funds in US PE: Fundraising and Performance
By Jinny Choi, Analyst, Private Equity
In the crowded fundraising environment of 2022, mega-funds of $5 billion or more have continued to take up a greater share of US PE capital.
After raising and then deploying record amounts of capital in 2021, sponsors have been returning to their investors and seeking re-ups at a quicker pace.
|  | | PE mega-funds had another big year in 2022. | | | |
As LPs tend to prioritize larger and more-established managers, mega-funds are faring better in their fundraising efforts and account for over half of the capital raised in 2022 so far.
Our research note from early this year explores fundraising and performance trends within the PE mega-fund space:
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Investors Have Put 'Bad Blood' from Theranos in the Past
By Aaron DeGagne, CFA, Emerging Technology Analyst
Blood-based testing innovation is alive and well, despite the collapse of Theranos.
And while it may take more than a decade for liquid biopsies to reach their full market potential, these diagnostic blood tests are here to stay and can be an accessible alternative to more invasive tissue biopsies.
PitchBook and Morningstar analysts estimate the global addressable market for liquid biopsies could exceed $100 billion in the long term, as the tests become commonplace in annual physicals and replace existing cancer screening methods.
Our note dives into the potential for liquid biopsies to change the standard of care and unpacks the main challenges to widespread liquid biopsy adoption:
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| | | | | | | | | | | | | | Since yesterday, the PitchBook Platform added: | | 118 Deals | 543 People | 291 Companies | 20 Funds | | | | | | | | | | | | | | |
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