Emerging manager struggles: Collectively, newer US VCs have only raised $2.3 billion so far this year. What has given LPs pause? And what does this mean for the venture market in the long run? Read our research.
Talking liquidity: We're hosting a live discussion about private fund secondaries on Wednesday, featuring insights from professionals at Pantheon, Greenhill, and the Washington State Investment Board. To watch the free event, register here.
Mobility loses momentum: VC investment in mobility tech fell in Q1, but recent developments in China and California could bring some buzz back to the vertical. Our new Mobility Tech Report has the latest. Read a free preview. | | | | | |
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| Why PE investors have been pumping the brakes | | While the story in PE throughout much of 2022 was defined by resiliency, the environment has become more challenging, leading to a slowdown in activity. As the resiliency fades, the outlook for PE is looking increasingly fragile. Most notably, short-term interest rates remain elevated above 5% and credit conditions have tightened as many banks and investors have pulled back from risky lending. We do not foresee a reprieve from these conditions in the near term as core inflation remains well above the Fed's target, thus creating a risk that rates will stay higher than 5% for longer than many are expecting. It will likely be difficult for inflation to ease without a material slowdown in real growth and recession, which is another risk that investors should be considering—our quantitative model predicts a 78% chance that a recession occurs within the next 18 months.  | | Click to see our quantitative model on recession odds. | High debt costs and lack of credit availability have been a significant headwind to completing buyout deals. Although private credit continues to increase its share of LBO debt, an effectively closed leveraged loan market has created a big hole to fill. Buyout deal activity (in dollar terms) over the past six months fell to its slowest pace since 2020 and, prior to that, 2008. Deals less reliant on leverage, however, continue to get done as GPs are finding ways to put money to work. The increase in debt costs also continues to put pressure on portfolio companies with high leverage. Strong revenue and profit growth helped many companies weather the need for more cash flow but falling profit margins may put that at risk. After reaching a record high of 16.2% in 2022, nonfinancial corporate profit margins have fallen to 13.8% through Q1. Slowing profit growth has likely influenced early signs of credit distress for risky borrowers. The distress ratio by issuer count in the Morningstar LSTA Leveraged Loan Index has ticked up to 9.3% and the default rate for loans with financial covenants is at its highest level since 2008. Exit route options for PE-backed companies are extremely limited. The current slowdown in exit activity is on par with those that occurred in 2008 and 2020 despite public market conditions that are relatively positive. Based on the deviation of exit activity from its long-term trend, we estimated that the cumulative exit shortfall from the beginning of 2019 through Q1 2023 was $60.2 billion. Slower exit rates will have important implications for fund performance as distributions get delayed. We show that even if TVPI ratios recover, slower distributions can materially reduce IRRs. For more information and data on the topics discussed, please download the free report: Pumping the Brakes | | | | | | | | | Introducing: PitchBook Private Capital Indexes | | Navigating the ever-shifting macro landscape with a private market portfolio offers unique challenges to capital allocators, particularly around return benchmarking and risk measurement—which is notoriously opaque. To provide the market with robust, transparent private fund performance metrics, we have published our quarterly Benchmarks since 2017 along with a supplemental research piece, where we regularly comment on market trends, called the Global Fund Performance Report. Now, we've launched a third companion report, PitchBook Private Capital Indexes, which takes fund performance analysis a step further, repackaging our capital-weighted, aggregate quarterly returns which we have published for several years into private capital indexes. These indexes span private equity, venture capital, real estate, real assets, private debt, funds of funds, and secondaries funds.  | | Click to dive into our Private Capital Indexes. | Built leveraging our large database of fund-level cash flows and NAVs, the indexes offer a pseudo-time-weighted method for comparing industry-level returns quarter-to-quarter, facilitating performance comparison with other asset classes. The addition of fund quartile indexes and geographic breakouts, as well as select sub-asset class indexes, furthers the granularity of our analysis. Additionally, we supplement the indexes with adjustments to address the traditional 'smoothness' of private market returns. Our adjusted return series unlocks more realistic volatility measures and correlation analysis, enhancing the robustness of risk/return modeling parameters. We believe this data-driven research report will help elevate allocators' decision-making capabilities in this complex asset class. PitchBook clients have access to all the underlying data in our Platform. Download the PitchBook Private Capital Indexes. As always, we appreciate any feedback or questions. | | | | | | | |
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VC Investment in Climate Technology
Climate tech investment fell slightly last year after reaching a peak in 2021, but the sector's key drivers remain strong.
Corporate net-zero targets, consumer demand, and regulation continue to propel the space amid the challenging economic conditions affecting broader VC.
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But which individual segments have been standing out?
Our research dives into areas like electric vehicles, power grid infrastructure, and industrial decarbonization: | | | | | |
2023 European Private Capital Outlook: H1 Follow-Up
Now that we're about halfway through the year, it's time to assess how our 2023 predictions for European private markets are faring.
Are PE take-privates and carveouts trending as expected?
Is European VC activity with US investor participation still growing?
We revisit these forecasts and more: | | | | | |
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Weight-loss drugs like Ozempic and Wegovy have exploded onto the digital health scene—and companies and investors are looking to cash in.
But with several risks and high price tags, is this VC's latest fad or a lasting transformation in healthcare?
Our new Digital Health Report, which PitchBook clients can access in full, digs deep into this trend and others at a precarious time for the industry.
The research also includes trends in VC activity, top deals and investors, and a company spotlight on tech-enabled kidney care startup Monogram Health: | | | | | | Investors have many opportunities within information security, as innovation within the vertical continues to adapt to an unstable world.
Some key takeaways from our 2023 Information Security Overview: - The infosec software market is expected to grow to $190 billion by 2026.
- VC activity totaled $2.5 billion across 127 deals in Q1, continuing a flat trend from the last two quarters.
The full report features our new vertical segmenting, the latest VC data, industry drivers, and more: | | | | | | Foodtech is forging ahead despite limited funding.
In Q1, VC investor activity in foodtech startups hit its lowest level since 2017, but a few noteworthy deals bucked the downward trend.
Meal replacement provider YFood snagged $230 million, while niche segments like fermented protein and kitchen tech & robotics stood out with 84% and 100% quarter-over-quarter growth, respectively.
Our Foodtech Report includes VC trends, key players, and emerging opportunities in areas like restaurant management systems and seafood alternative proteins: | | | | | |
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Our insights and data featured in the press: - Venture capital investment in military tech startups is booming. [FT]
- Why sustainable aviation fuel is a compelling area of interest within climate tech, "at least for now." [GeekWire]
- Only $11.3 billion was invested in late-stage companies in Q1, the lowest quarterly total since the fourth quarter of 2017. [TechCrunch+]
- Expected PE activity in Europe fails to materialize as interest rate pain scuppers deals. [City A.M.]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. | | | | | |
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Highlights from our other recent research:
Market updates
Thematic research
Industry & tech research
Coming next week (subject to change) - VC Financial Benchmarks
- VC Outlook: H1 Follow-Up
- E-Commerce Report
- AI & Machine Learning Report
- How Tough is the Fundraising Environment Actually?
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| | Since yesterday, the PitchBook Platform added: | | 364 Deals | 2065 People | 584 Companies | 16 Funds | | | | | | |
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