Evening Brief – 06.19.23
Private equity and venture capital fundraising is expected to decline this year, mainly due to concerns about macroeconomic factors such as supply-chain constraints, inflation and the war in Ukraine, according to the second edition of Acuity Knowledge Partners’ global Private Equity and Venture Capital Survey.
The survey of roughly 70 firms globally showed that most respondents (55%) expect fundraising to decline in 2023, far more than 6% in 2022, while the proportion of respondents who are unsure whether they will raise new funds increased by 50%, to 30% in 2023. As confidence deteriorates, professionals who believe investment opportunities are increasing have declined substantially, to 41% from 67%.
“Rising interest rates dented fundraising expectations in Q2 2022, and expectations are likely to remain low until Q3 2023. However, the sector seems to believe this is a passing trend, as expectations for raising new funds beyond Q3 2023 remain strong,” said Sumit Chhabra, Managing Director, and Co-head of Global Delivery at Acuity.
Respondents prefer non-tech sectors, with an increase in interest in financial services, retail and manufacturing. These sectors are also attracting tech-driven transformation, but they are not entirely tech-dependent and have pent-up demand from during the pandemic, according to the survey.
The tech areas favored amid the lockdowns are declining and those that lost favor are returning. Health tech has witnessed nearly a 39% decline, while travel tech is making a comeback, with a 60% increase in interest from PE and VC firms.
Nearly two-thirds of the respondents believe valuations will decline, a sixfold increase from 2022, as global indices face increased volatility this year and private markets struggle with valuation revisions of portfolio companies.
ESG is increasingly influencing PE and VC operations as concerns over climate change, corporate governance and social disparity continue to heighten. Nearly 69% of the firms surveyed have an individual designated to deal with ESG-related matters, and 63% of the respondents have an ESG committee to monitor portfolio performance. Additionally, 60% of the firms publish ESG, CSR or sustainability reports, underscoring the sector’s commitment to meeting ESG-related targets.