The VC industry has a $1.2 trillion problem
Plus: Opportunities build in pharma services, and climate-tech fundraising bounces back
Welcome to The Weekly Pitch. Every Friday, we compile the week’s top news and research from PitchBook, the industry-leading source for info on the worlds of VC, PE and M&A.
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The venture industry grew rapidly over the past decade because it outperformed other asset classes. But now, its size is a liability: It manages far more assets than the exit markets can currently absorb.
The IPO market has yet to open broadly, and the smattering of recent unicorn IPOs—like Astera Labs and Reddit—simply don't move the needle for an industry that now requires a high volume of large offerings to generate meaningful returns.
The combination of large portfolios and low exits suggests that a massive turnaround in tech IPOs is needed to return VC to the performance that underpins its reputation, PitchBook's James Thorne writes. US VC firms managed nearly $1.2 trillion at the end of 2023, according to the latest PitchBook-NVCA Venture Monitor.
Cash distributions—the money flowing back to LPs—continue to decline as a share of assets, sinking to the lowest level since the global financial crisis. Distributions amounted to 5.1% of the net asset value overseen by US VC firms last year, down from over 30% in 2021. Over the last decade, the rate of distributions-to-NAV at US VC firms averaged 17.1%.
PE managers start redirecting capital toward pharma services
Deals within pharma services are riding tailwinds that are likely to attract PE managers in the second half of the year, driven by several factors including scientific advancements and increased competition for outsourcing services, PitchBook's Janelle Bradley writes.
This also reflects a shift away from healthcare services, which is facing margin compression, heightened regulatory scrutiny and a growing backlog of exits.
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Climate-tech fundraising bounces back
Fundraising for climate-tech companies is on the upswing in 2024, with fund value already on track to exceed numbers from 2023, PitchBook analyst John MacDonagh shows. While 2022 marked a peak in climate-tech investment, the decline over the last two years is largely a part of wider VC deal trends and not necessarily indicative of the strength of climate tech itself.
Eighteen climate funds have closed so far in 2024, with five exceeding $300 million each. Emerging firms still make up over half of VC climate-tech investors so far in 2024, though the ratio of experienced to emerging firms is becoming more balanced as new climate regulations gain widespread acceptance.
Admissions Manager │ Teacher │ Sales & Marketing Afficionado │ Headhunter │ Technology Community Builder and Director at Lawson Brooke
4 个月As we like to say at Lawson|Brooke the IPO market is constipated
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