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1、Global Fund Banking Outlook Report Q4 2023A year ago in this column,I wrote about rising interest rates and their potential effect on private markets and the economy as a whole.At the time,few expected rates to climb and remain at elevated levels for this extended amount of time.This year,firms have
2、 had to adapt to an environment of“higher for longer”interest rates,modifying their approach to various aspects of fund management.In this report,we analyze how managers are adapting by looking at several trends we are seeing in our proprietary data,surveys and conversations in-market.One area of fu
3、nd management that chief financial officers(CFOs)are thinking critically about is capital call lines of credit(CCLOCs).We frequently receive questions around how to manage CCLOCs during this period of higher interest rates and have built an illustrative model to help understand the effects of intere
4、st rates,payoff structures and hurdle rates on a funds internal rate of return(IRR).To preview the results,we find that CCLOCs would generally have a positive impact on returns even if interest rates continue to rise.Relatedly,we find increased use of CCLOCs for portfolio company notes as a way to c
5、ontinue providing capital for portfolio companies during this period of constrained liquidity.A silver lining to the slower investment and fundraising environment has been funds ability to take advantage of additional bandwidth to build their internal operations,such as deploying enterprise resource
6、 planning(ERP)systemsand implementing increased cybersecurity controls.Recent SVB targeted polls and proprietary data confirm the increased focus on these activities.As we close the book on a year that was difficult for many in the industry,I reflect on the incredible adaptability and resiliency of
7、private fund managers as they have navigated a challenging macro environment.We are proud to continue serving the industry and look forward to a stronger 2024.Private Market Resiliency in a“Higher for Longer”Environment2Q4 2023 GFB Outlook ReportJesse HurleyHead of Global Fund BankingSilicon Valley
8、BankSVB ConfidentialSVB ConfidentialAnthony DagostinoCEO and founder,ConvergePage 16Higher for LongerDowntime Allows Firms to BuildCFOs React to a Changing Landscape Options for Liquidity3Q4 2023 GFB Outlook ReportThe Recession That Wasnt?Consumer spending has continued to prop up the domestic econo
9、my,thanks to a resilient labor market that could be leading to the elusive soft landing.Still,the Federal Reserve(the Fed)is in no rush to cut rates,and geopolitical events continue to contribute to market volatility.Investors are proving adaptable to this difficult macro environment that is marked
10、by“higher for longer”rates and ongoing geopolitical uncertainty.Macro:Higher for Longer Interest RatesCapital:CFOs React to a Changing LandscapeExits and Performance:Options for LiquiditySpotlight:Downtime Allows Firms to BuildFunds are adapting their approach to many fund management aspects in toda
11、ys private market environment.To combat more difficult fundraising dynamics,funds are looking abroad for limited partner(LP)investment dollars.On the investment side,general partners(GPs)are thinking critically about how to use their subscription lines and the benefits of these lines at various inte
12、rest rates.Finally,managers must grapple with how macro issues affect valuations,especially in later-stage venture capital(VC).Firms are using additional bandwidth to implement more robust systems and processes.Two areas have been in focus for firms:portfolio monitoring and cybersecurity.We have see
13、n increased adoption of ERP systems to manage larger and more complex funds as well as a larger number of banking and deposit products.Meanwhile,firms are boosting cybersecurity measures to defend against wire fraud and other risks.Portfolio company notes have continued their rise in prominence as f
14、irms and investors grapple with depressed exit markets and as portfolio companies cash runway trends downward.Such alternative liquidity solutions provide a bridge in the funding gap and allow companies to make accretive acquisitions or grow the business until an exit can be realized.4Q4 2023 GFB Ou
15、tlook Report5$200$300$400$500$600$4.00$4.25$4.50$4.75$5.00Jan.21Mar.21May 21Jul.21Sep.21Nov.21Jan.22Mar.22May 22Jul.22Sep.22Nov.22Jan.23Mar.23May 23Jul.23Sep.23-4%-2%0%2%4%6%8%10%Q121Q221Q321Q421Q122Q222Q322Q422Q123Q223Q323The Anxious Index:Probability of Decline in Real GDP Next Quarter1Contributio
16、ns to%Change in Real GDP4Inventories and Consumer SpendingIndexed to 100 in Jan.22Consumer Debt and Interest Payments5Notes:1)Average probability given by the Survey of Professional Forecasters for a negative value for quarter-over-quarter real GDP growth.2)Aligned for the quarter forecasted.3)Succe
17、ss defined as quarters in which a recession occurred and the Anxious Index jumped by at least 10percentage points,starting in 1970 through Q3 2023.4)Seasonally adjusted.5)Total consumer credit owned and securitized,seasonally adjusted.6)Average annual percent change in real GDP for 2000 through 2022
18、.7)Estimate based on the difference between Feb.19(pre-repayment pause)and Jul.23(pre-repayment restart)Department of Education deposits into the Treasury General Fund.Source:Federal Reserve,Bureau of Economic Analysis,US Census Bureau and SVB analysis.More than a year and a half into the Feds tight
19、ening policy,the economy has proven surprisingly resilient,leaving many to wonder whether this is“The Recession That Wasnt.”Economists began increasing expectations for a real decline in gross domestic product(GDP)in late 2022,with the Anxious Index1jumping from 7.3 in Q3 21 to a high of 47.2 in Q1
20、23.The market took this as a potential signal of an upcoming recession,as in more than two-thirds of cases,an increase in the index has preceded a recession.3Instead,GDP growth bucked expectations.In 2023,quarterly GDP growth averaged an annualized 3.1%,far above the longer-term trend of 2.1%.6Why d
21、oes the economy continue to outperform?In short:Consumers.Consumer spending has been the driving force of this economic cycle.Personal consumption has been a positive contributor to GDP growth in all but one quarter since Q1 21,and consumer spending continues to charge upward.The strength of the con
22、sumer is shown in retail inventories as well,which have mirrored personal consumption.However,headwinds are on the horizon.Wholesaler and manufacturing inventories are beginning to lose steam,and there are signs that pandemic-era stimulus is working its way through the system.For instance,household
23、debt is rising,and debt payments are becoming a larger part of consumer expenditures.Meanwhile,the restart in student loan payments could pull an estimated$5.3 trillion from consumers pocketbooks each month,though this does represent less than 1%of personal interest payments.7Together,these headwind
24、s along with tighter fiscal policy may work with the Feds monetary policy goals to finally slow the economy.Still,with a stubbornly robust job market marked by record low unemployment,reports of the death of the US economy may indeed be greatly exaggerated.0%25%50%75%100%941999
25、20042009201420192024Average probability of GDP decline2NBER-defined recession69%of recession quarters forecasted by a jump in the Anxious Index.3Other componentsPersonal consumption:servicesPersonal consumption:goods10 of 11quarters had positive changes in personal consumption,bolstering GDP.Persona
26、l consumption4Inventories:manufacturers4Inventories:retail4Inventories:wholesalers4Consumer debt($T)Personal interest payments($B)Consumer debt(T)Personal interest payments(B)101%increase in personal interest payments since Jan.21.6Q4 2023 GFB Outlook Report5120Jan.22Feb.22Mar.22Apr.22May
27、 22Jun.22Jul.22Aug.22Sep.22Oct.22Nov.22Dec.22Jan.23Feb.23Mar.23Apr.23May 23Jun.23Jul.23Aug.23Sep.23US Federal Funds&Discount Target Rate High Water Marks:Length&Level1,2,3Rate Hike Periods:S&P 500 Returns1,2,3Federal Funds Target Rate Expectations4Notes:1)As of November 9,2023.2)US Federal Funds Tar
28、get Rate used from 1994-2023.US Discount Rate used in periods before.3)High water mark period determined from last rate hike until subsequent rate cut.4)Federal Reserve dot plot as of September 20,2023.Source:Federal Reserve,S&P Capital IQ,SVB proprietary data and SVB analysis.7Q4 2023 GFB Outlook R
29、eportDespite inflation being well below the highs of June 2022,it still remains above the Feds preferred target rate,with Chairman Jerome Powell recently stating“the process of getting inflation sustainably down to 2%has a long way to go.”Novembers meeting was the second consecutive meeting at which
30、 the Federal Open Market Committee(FOMC)chose to hold rates steady,following a string of 11 rate hikes,including four in 2023.As of this writing,the market-implied chance of another Fed rate hike by January jumped to 25%.1This indicates that while the possibility of a rate hike has increased,it is s
31、till much more likely that the Fed holds rates steady.As seen in past cycles,previous rate hikes take time to soak into the economy.Decent wage growth,sticky inflation and economic growth persisting at a healthy clip give credibility to the idea that the Fed might keep rates higher for longer.Since
32、the early 1970s,on average,the Fed has held interest rates at peak levels for around 10 months.Notably,the longest period of sustained peak interest rate levels occurred in the late 1980s,at almost two years,when concerns over uncontrolled inflation,the savings and loan crisis and a growing budget d
33、eficit defined the environment.If it proves to be true that the Fed is in no hurry to cut interest rates,what can history tell us about potential market impacts?To start,during periods of peak interest rates,public market performance is mixed.However,looking six to 24 months out from the last hike,p
34、ublic market performance is positive a majority of the time,posting low double-digitreturns on average.As with all cycles,each has its own unique set of circumstances.However,if the saying“history doesnt repeat but tends to rhyme”holds true,look for public markets to post healthy performance figures
35、 heading into next year.0%1%2%3%4%5%6%7%8%9%10%11%12%13%14%15%06248546080-8177-8073-7487-9099-0122-Present94-9504-0715-20MonthsInterest rate levelFirsthikeLast hikeCut dateHike cycleHigh water mark period+6 mos.last hike+12 mos.last hike+18 mos.last hike+24 mos.last hikeMar.22Jul.23N/A3%-
36、3%-Dec.15Dec.18Mar.2021%22%20%31%26%50%Jun.04Jun.06Sep.0712%19%11%18%16%0%Jun.99May 00Jan.017%-8%-6%-12%-22%-25%Feb.94Feb.95Jul.950%18%19%36%38%67%Sep.87Feb.89Dec.90-9%15%22%13%8%27%Sep.80May 81Nov.812%-7%-5%-10%9%25%Aug.77Feb.80May 8020%-4%9%10%15%-1%Jan.73Apr.74Dec.74-25%-27%-22%-3%0%14%Median3%-3
37、%10%11%12%20%Average3%3%6%10%11%20%Pos.78%44%63%63%88%75%7.4 Mos.3.5 Mos.5.9 Mos.21.8 Mos.5.2 Mos.7.6 Mos.14.6 Mos.14.4 Mos.3.6 Mos.80-8177-8073-7487-9099-0122-Present94-9504-0715-20Length of High Water Mark by Cycle1,2,3lllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll2024
38、20252026Longer run6.56.05.55.04.54.03.53.02.52.0-100%-50%0%50%100%150%200%250%Dec 95Jun 96Dec 96Jun 97Dec 97Jun 98Dec 98Jun 99Dec 99Jun 00Dec 00Jun 01Dec 01Jun 02Dec 02Jun 03Dec 03Jun 04Dec 04Jun 05Dec 05Jun 06Dec 06Jun 07Dec 07Jun 08Dec 08Jun 09Dec 09Jun 10Dec 10Jun 11Dec 11Jun 12Dec 12Jun 13Dec 13
39、Jun 14Dec 14Jun 15Dec 15Jun 16Dec 16Jun 17Dec 17Jun 18Dec 18Jun 19Dec 19Jun 20Dec 20Jun 21Dec 21Jun 22Dec 22Jun 23S&P 500 Trends Surrounding Geopolitical Events1S&P 500 returns from bottom following geopolitical eventsS&P 500 YoY Change and 1Y Lagged TTM VC Investment YoY Change2Notes:1)Geopolitical
40、 events determined using subjective analysis and in conjunction with analyses by Deutsche Bank and First Citizens Bank.2)VC investment includes the trailing 12-month sum for all completed angel,seed,early stage,late stage and corporate deals for US-headquartered companies.Source:Deutsche Bank,PitchB
41、ook Data,Inc.,S&P Capital IQ and SVB analysis.As geopolitical events overseas continue to unfold,public markets,as expected,have reacted with more volatility.After the initial onset of the conflict in the Middle East(defined here as October 7),the S&P 500 fell 4.5%over the next 10 days.Since then,ho
42、wever,it has more than recovered and is now in positive territory.While this may be surprising to some,when looking at historical longer-term impacts of geopolitical conflicts on public markets,the results are fairly consistent.Analyzing past geopolitical events from the late 1930s until 2017,the ma
43、rket bottom from the initial onset of the event usually lasts around 17 trading days,and it takes just as long to recover(on a median basis).The median sell-off during that time period is 6%.However,when looking at the future public market returns 3,6,12,18 and 24 months from the market bottom,publi
44、c markets tend to deliver exceptional returns.The frequency of those positive returns is fairly high,with periods following geopolitical shocks producing positive returns north of 80%of the time.This highlights how after the initial shock of an event is digested by market participants,investors tend
45、 to turn their attention back to fundamentals and focus on areas such as corporate earnings,the interest rate outlook and economic growth.If public markets continue on their current trajectory,this would be a welcome sign for private investment especially within venture markets.Strong equity markets
46、 have a trickle-down effect into the private markets,whether it be from an allocation,wealth creation or liquidity standpoint.Historically,when the S&P 500 produces positive equity gains year-over-year(YoY),venture investment tends to follow suit a year or so later.While it is yet to be determined w
47、hether markets can continue their positive momentum heading into an election year,current signals point toward a rebound in private investment.?1Y lagged US VC investment trailing 12 months(TTM)YoYS&P 500 return YoYWhile private investment often lags,it tends to follow general public market trends 1
48、2 months later.Assuming the relationship holds,TTM US VC investment is set to rebound in the next year.-30%-20%-10%0%10%20%30%40%50%60%03691215182124Months after bottom following geopolitical event02004006008001,0001,2001,4001,60002040606.6%8.7%14.1%14.8%17.5%12345Median return from bottom following
49、 geopolitical eventsTime to bottom and recovery(trading days)Time to bottomTime to recover3612 18 24 Equity return8Q4 2023 GFB Outlook ReportMonths after bottom following geopolitical event9Nov.22Dec.22Jan.23Feb.23Mar.23Apr.23May 23Jun.23Jul.23Aug.23Sep.23Oct.23Average Number of Countries Represente
50、d by LP Base,by Vintage Year and Strategy1Destination of International Investments by US PE/VC Funds,Ranked Monthly2Notes:1)“PE Other”includes real estate,fund of funds,debt,energy,infrastructure,distressed,turnaround,natural resources and other subcategories.2)Based on proprietary FX data showing i
51、nvestments by US-based PE/VC funds into non-US-headquartered portfolio companies.3)Rest of World.4)Australia and New Zealand.Source:SVB proprietary data and SVB analysis.Current macroeconomic and geopolitical forces are pushing GPs to reconsider the geographic parameters of their fundraising and inv
52、estment activities.As LPs grapple with muted public markets and look toward lower-risk assets that now have higher interest rates,GPs are facing a more difficult fundraising environment.To illustrate,the average check size fell 6%in 2022 compared to 2021 levels and is poised to fall again this year
53、according to proprietary SVB data.Increased fundraising pressure is leading many GPs to expand their fundraising efforts by broadening their target LP base.One way GPs are expanding their base is by pursuing LPs internationally.According to proprietary SVB data,there has been a clear trend toward a
54、wider geographic base of LPs.For vintages between 2020 and 2023,the average number of countries represented by the LP base was 6.7,a 26%and 44%increase compared to vintage groups 2017-2019 and 2014-2016,respectively.This trend exists across each asset class as well but is perhaps most pronounced wit
55、hin growth funds.Growth funds have seen not only the most geographically diverse LP base historically but also the largest jump between the 2017-2019 and 2020-2023 vintage groups.Should the fundraising environment remain difficult,we might expect GPs to continue expanding their pool of potential inv
56、estors.On the investment side,geopolitical events are forcing GPs to think critically about their investment theses and geographic risk.According to internal foreign exchange(FX)data,mainland China has been among the lowest-ranked destinations in terms of international investments by US private equi
57、ty(PE)and VC funds over the past year.This is likely due to the ongoing concerns over trade tensions,regulatory concerns and exit opportunities.Investment in other Asian countries has also trended downward.Europe,meanwhile,remains a fertile ground for US PE/VC funds despite the ongoing conflict in U
58、kraine.These trends will be important to track as geopolitical issues continue to dominate the news cycle.10Q4 2023 GFB Outlook ReportOther AsiaEuropeROW3UKN.AmericaMainland ChinaOther AsiaEuropeROW3UKN.AmericaMainland ChinaANZ4ANZ44.75.36.-206789VCBuyoutPE OtherGrowth
59、-20192020-2023Avg.number of countries represented by LP base26.8%28.3%32.7%18.6%19.5%23.2%9.8%10.3%13.4%No lineof creditQuarterlypayoffAnnualpayoffBuyout Fund IRR Ranges Under Various CCLOC Interest Rates and Payback Scenarios3Notes:1)Equity includes common equity and preferred stock.2)
60、Utilization rates are indexed based on a two-month rolling average.3)For this model,a dataset of sample buyout fund cash flows were used only to demonstrate the effects of CCLOCs.The interquartile ranges should not be used as performance benchmarks.4)Only 4%said the level of debt was too low.Poll co
61、nducted by Coller Research Institute.Source:Coller Research Institute,PitchBook LCD“Leveraged Buyout Review 3Q 2023,”Preqin,SVB proprietary data and SVB analysis.The“higher for longer”narrative is influencing private fund managers,as they adjust their use of debt.Following the rate hikes that began
62、in March 2022,deal dynamics began to shift.One way fund managers began reacting to the higher cost of debt is in the buyout space,where the average equity contribution to buyout deals topped 50%for the first time since 2009,at the height of the Global Financial Crisis.At the same time that debt has
63、become more expensive,capital availability has grown substantially,and LPs appear supportive of using more of their equity capital for buyout deals.According to a summer 2023 poll,51%of LPs said there is too much debt in buyout deals.4GPs also began rethinking their strategies for using CCLOCs.We bu
64、ilt a model to find out how.Using a dataset of sample cash flows from buyout funds,we modeled the effect of using a CCLOC under various interest rates and repayment schedules.For interest rates,we chose three illustrative scenarios:3%to reflect boom times,8%to mimic the current market and 13%to repr
65、esent a more extreme environment.The model also considers three repayment schedules:(1)no CCLOCs(or immediate repayment),(2)repayment at the end of each quarter or(3)repayment at the end of each year.Under illustrative deal terms,the models results are consistent with the use of leverage:If the inte
66、rest rate is lower than the non-leveraged return,the leveraged return is higher.The results suggest that the most important variable is the time that the debt is outstanding.When funds repay annually and interest is 3%,the boost in IRR is 4.6 percentage points for the median buyout fund.When the int
67、erest rate increases to 13%,the boost in IRR is still 3.1 percentage points for the median buyout fund.Quarterly payoff schedules show less of a lift from CCLOCs.These results suggest there is still a financial case to be made for the use of CCLOCs despite a higher rate environment.Interquartile ran
68、geMedian3%interest rate26.8%28.0%32.1%18.6%19.3%22.2%9.8%10.2%12.4%No lineof creditQuarterlypayoffAnnualpayoff8%interest rate26.8%27.8%31.7%18.6%19.1%21.7%9.8%10.0%11.0%No lineof creditQuarterlypayoffAnnualpayoff13%interest rate11Q4 2023 GFB Outlook Report3%to 8%interest rate8%to 13%interest rate Re
69、payment schedules Repayment schedules CCLOC with annual payoff and 3%interest adds 4.6 percentage points to IRR at median.Adds 3.6 percentage points.Adds 3.1 percentage points.Average Equity Contribution to Buyouts1CCLOC Utilization by Strategy2Indexed to 100 in Feb.2230.0%31.7%35.7%37.8%40.6%40.0%3
70、9.5%35.1%32.1%33.3%32.9%42.6%50.8%43.8%41.5%39.4%37.0%38.5%42.4%43.2%43.5%42.1%47.5%49.5%48.2%47.4%51.9%979899000070809512223Equity contribution in 2023 highest in decadesVC:early stageVC:late stagePE:growthPE:buyout405060708090100110120Feb.22Mar.22Apr.22May 22Jun.22
71、Jul.22Aug.22Sep.22Oct.22Nov.22Dec.22Jan.23Feb.23Mar.23Apr.23May 23Jun.23Jul.23Aug.23Sep.23+87%in late stage since bottom$137B$237B$215B$251B$369B$392B$559B$569B$686B$724B$849B$819B$637B$322B$369B9461,2211,1191,3931,7272,7333,2323,5273,2413,1363,0543,8782,362900018201
72、92020202120222023Global Buyout,Growth and Venture Fundraising by Vintage Year2Fundraising Metrics by Vintage Year2Months to first close by vintage yearShare of SVB-Facilitated LP Introductions to GPs by Fund Strategy4Notes:1)Analysis based on global VC,buyout and growth 2023 vintage funds that had r
73、evised their initial target fund size lower.2)Data as of November 21,2023.Fund strategies defined by Preqin.3)Figures may not sum to 100%due to rounding.4)GP fund strategy determined using SVB proprietary taxonomy.Source:Preqin,SVB proprietary data and SVB analysis.As equity markets continue to find
74、 their footing among growing geopolitical concerns and interest rate uncertainty,the exit markets remain muted slowing the flywheel effect and depressing the fundraising environment.Current extrapolations have year-end fundraising falling to 2014 levels in terms of dollars raised and 2010 levels in
75、terms of funds closed.Not only are funds closing at a smaller clip,but it is taking them longer to do so.On average,funds are taking 50%longer to reach their first close in 2023 compared to last year.In the midst of the fundraising process,tempered expectations are also causing firms to lower initia
76、l estimates for the fund size.This year has marked the second year in a row in which a larger share of firms are revising target fund sizes.In 2023,among firms that have cut their initial target fund size,fund sizes have been cut by nearly 38%the highest percentage cut since the Global Financial Cri
77、sis.1,2To cope with tougher fundraising dynamics and smaller check sizes,GPs are further expanding their LP base across borders and tapping more diverse groups of LPs.On the flip side,LPs are getting more targeted.Based on proprietary intel,LPs last year were asking for introductions to a broad rang
78、e of strategies,but the opposite has been true in 2023.Proprietary data further reveals that LPs have shown an overwhelmingly stronger preference for more traditional buyout strategies this year,with an emphasis on middle market businesses and specialty managers within industrial and healthcare.In f
79、act,buyouts have seen a nearly 40 percentage point increase in the share of introductions requested.This is in large part due to LPs allocations to strategies like venture and growth being above targets following several years of record-breaking fundraising from LPs.Additionally,continued elevated v
80、aluation multiples and the muted exit environment have made it more challenging for LPs to extend commitments.This has pushed LPs to assign more of their budget towards traditional private equity strategies such as buyouts,where they believe more reasonable multiples exist.16%19%12%12%72%69%20222023
81、54%72%19%10%27%19%20222023Fundraising dollarsFunds closedShare of funds closed(#)3Share of funds closed($)3VCGrowthBuyoutVC GrowthBuyout45%46%42%37%36%24%22%26%31%200021202220236.3 Mos.6.5 Mos.6.7 Mos.6.0 Mos.5.6 Mos.6.3 Mos.5.9 Mos.5.4 Mos.8.3 Mos.2000212
82、0222023Share of funds that lowered initial target fund size by vintage year12Q4 2023 GFB Outlook Report20232022BuyoutVCGrowthSecondariesCreditInfrastructureReal estateReal assetsDemand-to-supply ratioFair Value-to-Cost Basis Ratio for Select Investors1Capital Availability and Dealmaking Index2Notes:
83、1)Proprietary data is based on fund-level financials from Q4 22,Q1 23 and Q2 23 for a select group of VC and PE growth funds with vintages 2015-2019.Fair value-to-cost basis ratio is calculated by dividing a funds fair value at the statement date by its cost basis at the statement date for its priva
84、te investments.2)The demand-to-supply ratio shows the demand for VC capital divided by the supply of capital from VCs.Plotted is the average of early-stage,later-stage and venture growth indices.The dealmaking index shows the relative investor or founder friendliness of capital markets.3)Data for 20
85、23 through Q3.Source:PitchBook Data,Inc.,SVB proprietary data and SVB analysis.The difficult job of valuing VC-backed companies has become even more challenging as fund finance teams grapple with an uncertain environment.Valuation professionals shared their expertise at a recent SVB event.Read on to
86、 find out what we learned and how it complemented findings from SVB data.This year has seen VC funds mark down the fair value of their portfolios,with the majority showing decreased fair value-to-cost basis ratios.However,the decrease is perhaps less than what some market observers may have predicte
87、d for a couple reasons.First,aggregated data masks differences between early-and late-stage VC valuations,which have diverged over the past two years.Seed-stage valuations in particular have remained robust,while average late-stage valuations in 2023 were 32%lower than in 2021.The AI craze is partia
88、lly to blame for this divergence.AI companies tend to be earlier-stage,and with AI deals still fetching top dollar,early-stage VC valuations have gotten a boost.Second,headline valuations only tell part of the story.In a world with less capital availability and increasingly stringent investment requ
89、irements from VCs,founders are trying to extend runways as much as possible.Investors,meanwhile,have the upper hand,and the sentiment seems to be that“flat is the new up”when it comes to later-stage,non-AI companies.In response,there are increasing reports of“down structures”in which the deal has a
90、flat headline valuation but worse deal terms.There is some hope that the worst of the markdowns may be in the rearview mirror,as macro factors such as interest rates,geopolitical issues and public market multiples are already factored into company values.Still,these and other headwinds have the pote
91、ntial to have idiosyncratic influences on portfolio companies,instilling some amount of uncertainty into the future of valuations.%that decreased fair value-to-cost basis ratio in Q2 23%that increased fair value-to-cost basis ratio in Q2 23%that increased fair value-to-cost basis ratio in Q1 23%that
92、 decreased fair value-to-cost basis ratio in Q1 23Median metricMiddle 50%2.542.522.441.841.891.821.521.441.442.031.981.95Q4 22Q1 23Q2 23Average metricValuation Ranges,by Investment Stage30.0 x0.5x1.0 x1.5x2.0 x2.5x020406080100Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1 18Q1 19Q1 20Q1 21Q1 22Q1 23Dema
93、nd-to-supply ratioDealmaking indexEarly-stageLater-stageVenture-growthInvestor friendlyFounder friendlyDealmaking indices:$0$2$4$6$8$0222023$0$10$20$30$40$502020202120222023$0$20$40$60$80$100$20222023Middle 50%Top,bottom decileMedianAverageSeed stageEarly-stageVCLate-stageVC13Q
94、4 2023 GFB Outlook ReportSharp shift toward investor friendliness in 22-2314Top Choice ERPs Among Fund Managers1Top Choice Fund Administrators2PE fundsSurvey:Targeted by Wire Fraud3Have you been in an organization targeted by a wire fraud attack,regardless of financial loss?Survey:Cash Management Po
95、licies3Notes:1)Data based on ERP adoption for firms and fund administrators integrating with SVB(sample size=69).2)League tablesfor year ending September 2023,for US funds only.3)Data from a targeted poll of approximately 50 private fund CFOs.4)2023 data through November 14.Source:SVB proprietary da
96、ta,Convergence,Preqin and SVB analysis.With a slower deployment and fundraising environment,firms are using additional bandwidth to implement more robust systems and processes.PE and VC firms grew substantially between 2020 and 2023.To illustrate,the average US buyout fund size was$1.2 billion in 20
97、20,compared to a whopping$1.8 billion in 2023.4This growth has introduced complexity,requiring firms to adopt more robust systems and processes to manage organizations.Two areas have been top of mind for fund managers:portfolio monitoring and cybersecurity.In a targeted poll at a recent SVB event,pr
98、ivate fund CFOs reported that their top systems initiative this year was portfolio monitoring.It is no wonder then that there has been an increased adoption of ERP systems as private fund managers adopt these systems in place of,or in addition to,fund administrators.Generally,CFOs report managing th
99、e assessment,selection and implementation of systems such as these in-house,alongside a vendor.Internal data suggests that there are a range of ERP choices,though a slim majority prefer the top two.Firms not only need to manage more complex firms but also a larger number of banking and deposit produ
100、cts.This need has further contributed to the rise in ERP adoption post-March.The second area of focus for firms is cybersecurity,as an SVB poll of select private fund CFOs found that two-thirds of firms had been targeted by a wire fraud attack.Fortunately,financial losses appear to be relatively rar
101、e,with few respondents reporting a financial loss from a successful wire fraud incident.Still,this is one issue keeping CFOs up at night.To combat this,funds are developing robust cash management policies,often reinforcing these procedures through annual trainings.To learn more,SVB sat down with cyb
102、ersecurity experts who explained how firms can better protect themselves in the digital world.See the next page for more details.1%4%4%7%7%10%12%26%28%XeroGTreasuryMicrosoft GPSageFISNetSuiteKyribaModernTreasuryHazelTreeYes,66%No,34%Does your organization have a written cash management policy with c
103、lear wire transfer controls,including voice call back for new and modified accounts?8%92%NoYesIf your organization has a detailed cash management policy,does it provide annual training to ensure employees understand the importance of cyber controls in preventing wire fraud?67%33%YesNoVC funds1Apex F
104、und Services2SS&C3Gen II Fund Services4Citco Fund Services 5HC Global Fund Services 1Carta(eShares)2Aduro Advisors3Standish Management4Apex Fund Services5Allocations Fund Administration 15Q4 2023 GFB Outlook ReportDuring a cybersecurity session at the SVB Fund Finance Summit East in September 2023,6
105、6%of attendees reported their organization has been targeted by a wire fraud attack.Anthony Dagostino,CEO and founder of Converge,offers tips and best practices for identifying these threats and deploying critical cybersecurity controls to mitigate them before they cause harm.Read the ArticleDagosti
106、nos insights and best practices include:1.Cyberthreats pose investment and reputational risks in addition to operational risks.2.For private funds CFOs,the best time to identify threats and deploy critical cybersecurity controls is during the due diligence process,before closing on an investment in
107、a new portfolio company.3.As tools become more sophisticated,the return on investment generally drops.So it is useful to understand where an individual tool fits on the spectrum of risk mitigation versuscost when making decisions.16Q4 2023 GFB Outlook Report66%say their organization has been targete
108、d by a wire fraud attack.Source:SVB survey.17US Exit Markets:YoY Growth in Countof Exit Types1Median Cash Runway2of US VC-Backed Tech CompaniesCount of Portfolio Company Notes Indexed to 1003Aggregate and Average Portfolio Company Note Balances Indexed to 1003Notes:1)Data extrapolated based on figur
109、es as of November 21,2023.For US-headquartered companies only.2)Cash runway determined by dividing average cash and equivalents by average negative EBITDA for a given quarter.3)Portfolio company notes identified by analyzing primary borrower names of CCLOC data and the underlying borrower names of e
110、ach note within the CCLOC.Source:PitchBook Data,Inc.,SVB proprietary data and SVB analysis.18Q4 2023 GFB Outlook ReportExit markets have remained muted as investors and founders look for more confidence in the public markets and in the macro environment.At the current clip,the three major exit route
111、s IPOs,M&A and buyouts are trending toward falling consecutive years.All three are on pace to fall 25%-30%relative to last years levels.This is the first time all three exit paths have fallen in consecutive years since 20142016,when markets were grappling with deep double-dip corrections surrounding
112、 geopolitical concerns.This has led to limited distributions back to investors,creating knock-on effects such as misallocation,weaker performance metrics,limited follow-on investment and a broader slowdown in fundraising.To cope with a tighter liquidity environment,investors have turned to alternati
113、ve solutions such as secondaries and net asset value(NAV)loans to boost liquidity on both the investor and fund sides.One additional liquidity solution that has gained momentum in recent months is the portfolio company note.Since summer 2022,portfolio company notes have consistently trended up and t
114、o the right as investors started to digest the liquidity crunch.In contrast to the previous liquidity solutions mentioned above,portfolio company notes provide a way to bridge the funding gap and allow a company to make an accretive acquisition or grow the business until the fund can realize an exit
115、.This has become especially important,as cash runway for many of these companies has started to dwindle with investors pulling back and companies continuing to burn capital.Since its peak in December 2021,the median cash runway for US VC-backed tech companies has fallen 26%as of Q3 2023.While more i
116、nvestors have started to tap into this alternative funding solution,average balances per note have not ticked up materially in recent quarters.This points to a situation in which more notes are being used but at similar dollar amounts.However,who is using this solution has shifted in recent quarters
117、,with West Coast firms and tech-focused investors using the line at a much higher clip.02550755200225Dec 19Mar 20Jun 20Sep 20Dec 20Mar 21Jun 21Sep 21Dec 21Mar 22Jun 22Sep 22Dec 22Mar 23Jun 23Sep 23809000180Dec 19Mar 20Jun 20Sep 20Dec 20Mar 21Jun 21Sep 21Dec 21Mar 22J
118、un 22Sep 22Dec 22Mar 23Jun 23Sep 23-120%-100%-80%-60%-40%-20%0%20%40%60%80%100%120%200000222023IPOsM&ABuyoutsAverageAggregateProjected 2023 FiguresIPOs:-23%M&A:-24%Buyouts:-27%Months of cash runway024681012141618Mar 17Sep 17Mar 18Sep 18Mar 19Sep 19Mar 20Se
119、p 20Mar 21Sep 21Mar 22Sep 22Mar 23Sep 23-26%To access more insights from Global Fund Banking,please visit our Private Equity CFO Insights library.Jesse HurleyHead of Global Fund Banking Andrew Pardo,CFASenior ResearcherMarket InsightsJake Ledbetter,CFASenior ResearcherMarket InsightsGlobal Fund Bank
120、ing LeadershipMarket Insights TeamMark LauNational Head of Venture RelationshipsRobin GillHead of East RegionLarry ZahnHead of West and Central RegionTo learn more about Global Fund Bankings capabilities to provide relevant insights,connections and banking and financing solutions for your firm,fund
121、and executives,please contact:Market Insights delivers proprietary research and analysis to private equity and venture capital firms on the trends,behaviors and decision-making of sectors,investors and companies driving the innovation economy.To access more insights from Market Insights,please visit
122、 our Signature Research page.19Q4 2023 GFB Outlook ReportSilicon Valley Bank(SVB),a division of First Citizens Bank,is the bank of some of the worlds most innovative companies and investors.SVB provides commercial and private banking to individuals and companies in the technology,life science and he
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