| | | | | The Research Pitch | January 14, 2023 ![]() | | Presented by Masterworks | | | | | | | 2022 VC data is here! For the US venture capital industry last year, momentum from 2021's highs continued early on but faded drastically. Our new PitchBook-NVCA Venture Monitor has all our latest data and analysis covering all corners of the market. Read our flagship VC report.
Changing infrastructure: Our latest analyst note breaks down what you need to know about the forces shaping the past, present, and future of sustainable and digital infrastructure investing. Read it here.
Looking ahead: Two of our analyst teams will be hosting live discussions next week on what to expect across the private markets in 2023. Click the links below to register: | | | | | | | | | 2022: A year of transition for PE as the industry adapts and innovates | | Our annual US PE Breakdown is now available for download. This is one of our most widely read publications, as it records the final data and major trends for the year that was in PE land. Everything is covered, from buy-side deal activity to exit activity, fundraising, and fund performance, leveraging our database of 75,000 PE deals going back 15 years. We call 2022 a year of transition for the PE industry. It was the year when nirvana ended and the harsh environment of runaway inflation and borrowing costs began. The big surprise coming out of the year is what didn't happen. Namely, the industry did not shut down even though its main source of lending for big deals did. Instead, deal activity stayed resilient in large part due to private debt funds, which stepped in to fill the void left by banks and traditional lenders.  | | We now have more deal terms and debt metrics than ever. | Other adjustments were made on the fly. PE firms did smaller deals by way of more frequent add-ons, growth equity investments, and carveouts, all of which tend to be more easily digested and financed. Amazingly, deal count barely budged from 2021's torrid pace, falling 2.4% YoY. Since deal sizes were smaller, they added up to a lower total value, down 19.5% YoY. Still, the industry cleared $1 trillion in deal value for the second time ever, an incredible achievement given the hostile environment. Challenges remain, however. Near-record PE buying has outstripped selling by more than half a trillion dollars over the last year. There is a symbiotic relationship among exits, fundraising, and investment in new platform companies. Exit value is usually the largest bucket of the three, but in 2022 it fell to half of the other two. We see lean exit activity eventually leading fundraising and deployment lower. There is also the threat of recession. It remains to be seen if all the adjustments that PE has made will hold up in a downturn if too severe. In the base case, we believe that the industry will continue to innovate, adapt, and complete its transition to an environment where traditional sources of liquidity will join these new ones. Banks will lend again, and IPOs will price again. Until then, we will keep watching and writing. Download our free 2022 Annual US PE Breakdown (and get access to the underlying data in XLS format). | | Enjoy the read!
Tim Clarke
Lead Analyst, Private Equity | | | | | | | | | 13 takeaways from the 2023 J.P. Morgan Healthcare Conference | | Our healthcare team was on the ground in San Francisco as the industry's premier event returned in person.
We'll publish a full conference recap Tuesday, but for now, here's a TL;DR of key announcements, market sentiment, emerging trends, and predictions for 2023 and beyond:
Deals and announcements
1. Element of surprise: Element Biosciences announced a $200 genome as the genomic sequencing war heats up. Lower sequencing costs will accelerate innovation in genome-based research and diagnostics.
2. Chess pieces keep moving in the primary care game. News leaked that CVS is in talks to acquire Oak Street Health for north of $10 billion, which would create a powerful rival to Humana's CenterWell and Conviva Care Centers and constitute a defensive play against Walmart.
3. The conference spotlighted gene editing, which holds promise for advanced treatment for AIDS, cancer, and cystic fibrosis. Genetic medicine delivery startup ReCode Therapeutics stood out by announcing new partnerships with the Cystic Fibrosis Foundation and Bayer's AskBio.
4. Significant fundraises for Carbon, Monogram, Array Behavioral Care, Holmusk, and ReCode demonstrate that healthcare corporate venture arms are still putting capital to work for late-stage companies with a proven ability to bend the cost curve.
Market conditions
5. PE dry powder is still plentiful, and the sell-side pipeline is strong, especially in the lower middle market. The challenge for 2022 will be aligning buyer and seller pricing expectations.
6. Despite enormous headwinds in the provider end market, healthcare IT companies that provide essential digital infrastructure are continuing to see rapid growth.
Trends to watch
7. Overheard: "Information from blood is unprecedented." Circulating DNA and RNA contains previously inaccessible health information. Caris detailed plans to launch a broad cancer monitoring blood test and aims to build universal blood-based diagnostic tests for diseases beyond cancer.
8. As the Medicare Advantage space grows increasingly crowded, presentations from Cityblock, Unite Us, and Equality Health demonstrated that Medicaid-focused provider and coordination models are increasingly scalable.
9. FDA commissioner Robert Califf fielded questions on the controversial approval of Biogen's Aduhelm, a treatment for Alzheimer's-related cognitive decline, and expressed ethical concerns around offshore clinical trials for products intended for the US market.
10. Hybrid care models look increasingly attractive, including for telehealth first providers. Virtual MSK startup Hinge announced an in-person home health pilot.
Predictions for 2023 and beyond
11. We foresee an acceleration of joint ventures and partnerships between value-based care enablers and health systems in the next one to two years. This will allow the enablers to scale more quickly while providing a path to increased risk (and increased revenue) for financially strained health systems.
12. Behavioral health M&A will heat up this year, driven by consolidation and/or take-privates of struggling tele-mental health providers and the need for value-based care delivery companies to integrate behavioral health services.
13. The employer self-insured market will increasingly participate in the shift to value—but only insofar as third-party brokers and care navigators can enable point solution consolidation and total cost of care reduction.
For more healthcare coverage, check out our recent research: | | | | | | | | | | | | VC performance turned negative in 2022, dipping in the first three quarters of the year.
Fund returns for private equity, funds of funds, and private debt were also in the red, in our full Q2 data, reflecting the worsening market environment. On the other hand, real assets and real estate funds have been a bright spot.
The newest PitchBook Benchmarks have just gone live, with dozens of pages of fund performance metrics through Q2 like IRR quantiles, pooled horizon returns, cash multiples, and PMEs sliced by strategy, vintage year, and geography: - Global (includes prelim Q3 data!)
- Venture capital
- Private equity
- Private debt
- North America
- Europe
- Secondaries
- Funds of funds
- Real estate
- Real assets
| | | | | | | | | | A long run of record-breaking PE activity came to an abrupt halt last year
Given the sudden reversal, many industry players are wondering what may be on the horizon for 2023.
Our PE analysts hosted a live discussion this week to share their forecasts for the coming year and offer insights into how dealmakers can navigate a more challenging environment: watch the replay - Jan. 19: Our lead venture analyst Kyle Stanford will join a DBRS Morningstar event to discuss the prevalence of venture debt within the US venture capital market. Register here.
- Feb. 9: Don't miss our popular quarterly webinar covering all of the latest trends in US VC dealmaking, exits, fundraising, and more. Register here.
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Information security analyst Brendan Burke weighs in on Netskope's $401 million financing round, led by Morgan Stanley Tactical Value, in the form of convertible notes:
"Information security unicorns are opting toward debt rounds to sustain their valuations during a market slowdown. Netskope's deal value exactly matches fellow infosec unicorn Arctic Wolf's debt deal value from Q4.
"The company continues to perform well—we tracked 29.7% headcount growth during 2022 while adding executives from tech giants including Salesforce, AWS, Cisco, and Palo Alto Networks.
"This deal size is the largest VC deal we have tracked for Morgan Stanley Tactical Value, demonstrating the expanding opportunity for private credit investors with unicorns.
"Given the company's funding history, this deal should be able to provide runway for 12-18 months, preparing the company for an IPO if markets recover.
"The company has also been an active acquirer of startups and must compete with secure networking leaders including Palo Alto Networks and Fortinet via M&A."
| | Brendan Burke
Senior Emerging Technology Analyst
Information Security | | | | | | | | | |
Our insights and data featured in the press: - Why crypto investors can now "go back to the correct valuations and the correct due diligence process." [Bloomberg]
- Investors may be souring on speculative tech, but AI looks resilient. [Business Insider]
- Q4 2022 marked the fourth consecutive quarter of declining US VC deal counts, while exit activity for the year fell below $100 billion for the first time since 2016. [TechCrunch+]
- VC investment into the Triangle in North Carolina hit a record in 2022, but a lot of that money went to one company. [Axios Raleigh]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. | | | | | | | | | |
Highlights from our other recent research:
2023 outlooks
Market updates
Thematic research
Industry and technology research
Coming next week (subject to change) - European PE Breakdown (sneak peek!)
- European Venture Report
- The Role of Placement Agents in GP Fundraising
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