The late-stage venture markets experienced a turnaround in November 2023, with positive returns reversing the previous three months of decline. Both the Morningstar PitchBook Global Unicorn 500 and Morningstar PitchBook US Unicorn 100 indexes showed strong gains with increases of 10.0% and 10.6%, respectively, during the month.
The change in performance across late-stage private markets was in line with the gains in public markets—a good reminder that public markets are a good leading indicator of private-market valuations. The US stock market, as measured by the Morningstar US Market Index, gained 9.4% in November. These gains in the market can be attributed to interest rates steadying and inflation easing, as traders expect the end of monetary tightening.
A recent tech survey conducted by PitchBook Institutional Research Group indicates that investors are optimistic about the future of venture capital activity, with expectations of a pick-up in 2024. Additionally, investors anticipate that the European Central Bank will lower interest rates early in the year.
AI and Cybersecurity Industries Lead Amid Strong Market Gains
The Morningstar PitchBook Global Unicorn Industry Vertical Indexes for cybersecurity and artificial intelligence experienced impressive growth with gains of 17.4% and 16.4%, respectively, for the year to date ending November 2023. Companies like Databricks, Neuralink, and BioCatch have seen significant valuation increases in the AI and cybersecurity sectors.
According to a recent note from PitchBook, there is growing interest in generative AI, with more deals focusing on the underlying technologies and vertical applications. Within generative AI, investment in middleware applications like software for audio, language, and video has been declining while becoming more concentrated in startups that are focused on creating chatbots and personal assistants and deploying large language models like OpenAI.
On the other hand, the Morningstar PitchBook Global AgTech Unicorn Index lost 24.1% for the year- to- date. This was mostly driven by Indigo and Bowery’s draw-down during the latter half of this year. In August, Indigo’s valuation decreased from $3.9 billion to $200 million. Similarly, in November, Bowery’s valuation went from $2.3 billion to $943 million. Bowery went through a second round of layoffs and put off opening new farming facilities in Georgia and Texas as investors pulled back from vertical farming. Indigo and Bowery were among the top five holdings of the index.
Meanwhile, venture capital in biopharma is experiencing a surge of enthusiasm. PitchBook Research reveals a shift in investment and research toward advanced areas like gene and cell therapies, as well as finding solutions for complex and chronic diseases. This diversification highlights the industry's dedication to innovation, targeting not only common illnesses but also more complex health conditions. Current trends include the development of obesity treatments and the integration of artificial intelligence in drug discovery processes, influenced by the success of drugs like Ozempic and the merging of machine learning with the drug discovery processes.
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