PitchBook, a Morningstar company providing comprehensive, accurate, and “hard-to-find” data for professionals doing business in the private markets, notes in an update that VCs say AI [artificial intelligence] leads innovation, are cautiously optimistic about IPOs, and are cognizant of geopolitical risk.
In a note from Pitchbook on emerging tech research, as part of an H2 2023 VC tech survey, the research company has shared key takeaways.
Key takeaways:
- VC investors show a marked increase in their optimism about VC activity, expecting an upswing over the next year, with an emphasis on profitability as a key investment criterion.
- Despite a widespread belief that overvalued market valuations have inhibited IPO
performance, there is a cautious expectation of improved IPO activity, influenced
by anticipated market gains and interest rate declines. - Geopolitical risks, particularly the impacts of war, now factor significantly into technology sector outlooks. These risks are affecting international investment
strategies, with China becoming less attractive to investors and Europe and Latin
America becoming more attractive. - AI retains its position as the most promising area for technology innovation, with generative AI expected to disrupt and create unicorns, while biotech benefits from AI advancements. Conversely, the crypto sector is seen as overinvested and
less likely to experience growth.
Pitchbook’s latest H2 2023 VC Tech Survey provides insights “from 72 VC investors to gauge their perspectives on technological innovation and fundraising expectations within the venture capital ecosystem.”
This survey follows the themes of our H1 survey, “providing a continuous perspective of how attitudes toward technology and the VC industry have evolved throughout the past year.”
In regard to fundraising, respondents are notably “more optimistic that VC activity will start to pick up over the next year.”
As stated in the update:
“The number of respondents who expect an increase in investment nearly doubled from our H1 survey. Notably, the path to profitability still remains the top concern for investors, indicating that diligence on investments remains elevated, but a greater share also report product-market fit as a key criterion.”
Survey respondents stayed cautious “on IPO activity, noting that market valuations may still be too high. Respondents viewed this as a key reason for most of 2023’s IPOs remaining below their offering prices.”
Fundraising strategies “remain steady, and venture capitalists continue to view 2023 as a portfolio vintage likely to have high return potential. However, relative to our H1 survey, respondents are now more optimistic that 2024 may also see high returns—an indication that market participants expect the sluggish VC environment to persist longer than originally expected at the start of the 2023.”
Geopolitical tensions have “climbed the ladder of concerns, with a significant increase in investors acknowledging the profound impact of global conflicts on the technology sector’s future. Europe and Latin America top the list of attractive non-US regions to invest in, with China cited as the least attractive.”
As in their previous survey, AI emerged as “the leading contender for innovation, captivating investors and overshadowing other sectors.”
Despite some concerns of overhype, generative AI is anticipated “to be a significant disruptor and potential unicorn generator.” Respondents are also bullish “on the biotechnology sector, a unique beneficiary of AI advancements that are propelling pharmaceutical breakthroughs and drug development.” Investors chose crypto technologies as “the least likely to see growth and adoption over the next year, as they see this sector as overinvested.”