VC-backed M&A spoils predictions, falling to decade low

VCs and market participants have been predicting an uptick in M&A activity for at least six quarters, but their forecasting powers keep failing them. 

2023 turned out to be the worst year in a decade for acquisitions of VC-backed companies, according to the Q4 2023 PitchBook-NVCA Venture Monitor. Companies purchased nearly 700 startups at a combined value of $26.7 billion, about a quarter of the value sold during the 2021 peak. READ MORE

By 2028, PE and VC fundraising could again reach 2021 highs

Chai latte in hand, I settled in yesterday morning to watch a seminar on private equity, run virtually by investment data company Preqin. I still love taking notes with different colored pens and highlighters.

There was one statistic that I highlighted, underlined, and circled: PE and VC fundraising will hit 2021 highs again in 2028. I found that surprising given that we’re still working through the aftermath of the most recent bubble (one source I spoke to recently compared 2021 in private capital to a wild, memorable party followed by a brutal hangover). READ MORE

New Diversity Reporting Law for Venture Capital Companies with a Nexus to California

On October 8, 2023, California Governor Gavin Newsom signed Senate Bill 54 (“SB 54”) into law, which attempts to increase diversity, equity, and inclusion amongst venture capital (“VC”) investments. The law is the first transparency measure of its kind in the United States and will have a wide reaching impact on VC companies nationwide. Thus, it is important to know which VC companies it affects and what the bill’s future holds. READ MORE

Growth investors' liquidity crunch drives new secondaries vehicles

Secondaries deals are tempting VCs in a down market, and investors are increasingly launching new vehicles to bag hoped-for startup discounts.

UK-based Digital Horizon, an early-stage VC, has rebranded as Launchbay Capital and debuted a fund dedicated to creating liquidity for GPs by buying discounted shares in growth-stage companies. The firm previously invested in household names in B2B software including Klarna, Carta and Monday.com. READ MORE

A Rough Climate for Private Equity Exits Leads to a Spike in Continuation Funds

Private equity firms, in part because of how their funds are structured, tend to be temporary investors. They buy companies, execute a strategy aimed at maximizing their value and exit, hopefully at a valuation greater than they paid going in. Limited partners go along for the ride in the hope of reaping the benefits.

But for many funds, the interest rate landscape and other market conditions are drastically different now than when they were launched, leading to the rise in popularity of continuation funds or vehicles (CVs). In these deals, rather than sell the company to another investor or go public as a fund reaches its target exit date, the original sponsors opt to hold onto their investment, rolling it into a new fund with a timeline of another five to seven years. At that point, LPs in the original deal are typically given the choice to cash out or roll over into the new fund. READ MORE

Can Private Credit Keep Outpacing Private Equity in 2024?

Last year State Street reported private credit funds averaged a 1.88 percent
return compared to to a paltry 0.41 percent return by buyout funds. But some of
the factors driving these results are expected to reverse in 2024.

Private credit has been “outpacing private equity returns as their lending rates have increased with the federal funds lending rate,” says Brad Haller, senior partner for West Monroe’s M&A Practice. “Additionally, private equity valuations have been compressed in some sectors, so realization values are down.” READ MORE

Q4'23 Global VC Deals Hit Lowest Levels Since Q3'16, Despite Sustained Interest In AI

Global Venture Capital (VC) investments sank from $531.4 billion across 51,894 deals in 2022 to $344 billion across 37,808 deals in 2023 amidst a thematic backdrop of geopolitical, macro-economic, and other challenges, including geopolitical conflicts, high interest rates and inflation, a parched exit environment, and ongoing concerns related to start-up valuations, Q4’23 edition of KPMG Private Enterprise Venture Pulse report observed.   

The report, published quarterly, highlighted that America accounted for more than half of VC investment this year ($183.6 billion), while the Asia-Pacific region attracted $92.4 billion and Europe $62.3 billion, last year. READ MORE

Navigating the VC Highway: How Savvy Founders Take the Driver’s Seat in Investor Relationships

When it comes to securing funding for their ventures, many founders are focused on one thing: money! While obtaining financial support is undoubtedly critical, it’s not the only consideration, and in fact, it’s just the beginning. When taking on investors, founders must consider various other factors, such as diversity, industry experience, regional connections, shared values and vision, and relationships with other investors. Unfortunately, many founders accept funding without conducting the same level of due diligence that investors conduct on them. This can lead to a mismatch between what the founder needs and what the investor can offer, which may ultimately jeopardize the entire venture. READ MORE

Many Boom Time Startup Acquisitions Have Worked Out Badly

Buying a startup can work out very well. Just ask Meta about its Instagram purchase in 2012 or let Google tell you about its $50 million acquisition in 2005 of a little company called Android.

But while success stories happen, it’s also true that many purchases work out badly. Acquirers might find they overpaid, face regulatory backlash, failed to scale the business, or have determined it isn’t a strategic fit. READ MORE

Private equity fundraising's big slide; pension funds' quiet 2023

The numbers are in on private equity's 2023 fundraising performance, and they show that investor commitments to funds fell to their lowest level since 2017.

The poor showing is a symptom of private equity's strained investment cycle. Exits from portfolio company investments have been relatively scarce over the past two years — at least compared to the record levels achieved in 2021 — throttling the flow of distributions back to investors. READ MORE

Private equity could be the last resort for startups struggling to exit

After watching Lucy pull the football from Charlie Brown’s foot at the last possible moment time and time again, we have learned our lesson and are therefore hesitant to believe that 2024 will be the year of the IPO market’s return. It may or may not happen, but we’re not betting on it.

Alternative sources of liquidity are therefore top of mind — there’s a towering pile of private companies in need of an exit, or a bailout. Recent research from Cowboy Ventures’ Aileen Lee underscores how quickly illiquid wealth was accumulated in the private markets in the last decade, and how rare exits have become for unicorns and other richly valued startups. READ MORE

VC bust? Time to return to fundamentals in 2024

Venture capitalists (VC) and startup founders will remember 2023 as the year the party ended. After years of record investments and outsized returns fueled by ultralow interest rates, 3,200 U.S. private venture-backed companies — mostly tech startups — went out of business last year. Collectively, the companies had raised $27.2 billion in venture funding. If history is any indicator, the collapse is just beginning. READ MORE

Venture Capital's New Era

In the ever-evolving landscape of venture capital, artificial intelligence (AI) has emerged not just as a tool but as a transformative force, redefining the parameters of investment strategies and operational efficiency. At the heart of this revolution lies the insightful perspectives of thought leaders like Dr. Mohammad Rasouli, an AI researcher from Stanford University and a consultant in guiding institutional investors through the intricacies of AI for alternative investments with his Bay Area tech company AIx2. READ MORE

4 charts: 2023's VC investor pullback

VCs and their portfolio companies took a bruising in 2023. From Silicon Valley Bank collapsing—and with it a vital lifeline for startups—to a frozen IPO environment closing off exit activity, this past year was one of the most challenging to date.

In response, investors pulled back, leading to chilling effects on the startup market, the latest PitchBook-NVCA Venture Monitor shows. As more investors opted to sit out 2023, companies contended with less favorable deals.

These four charts highlight the effects of the investor exodus. READ MORE

From Batteries To Building Materials, Green Manufacturing Startups Are Raising Billions

Modern humanity’s carbon-spewing ways probably have their roots in manufacturing. If it’s not the things we mass-produce, then it’s likely the processes used to make them. Or, in many cases, both are to blame for emitting copious quantities of CO₂.

Given this state of affairs, it’s not surprising that founders and venture capitalists have taken an interest in greener manufacturing. The space emerged as a popular theme, even amid a toned-down funding climate last year, with more than $10 billion invested globally across the larger rounds, per an analysis of Crunchbase data. READ MORE

Large Backers of Private Equity Are Asking For Their Money Back

Sovereign wealth funds and state pension providers are among investors telling money managers they’ll only commit in their upcoming fund raises if their capital tied up in old funds is released, according to people with knowledge of the matter.

Additional requests range from fee discounts and more co-investment opportunities, to greater information rights and representation on committees, the people said, asking not to be identified because the requests are private. Some are even asking for a cut of the fund’s management fee or an opportunity to buy a stake in the fund manager, the people added. READ MORE