3Q 2018
SMARTER
CITIES
How private markets
are reshaping the
urban landscape
The future of urban mobility
has two wheels (or so VCs think)
Page 4

Barbarians repairing the gates?
Why infrastructure is primed for
more PE investment
Page 8

Uber's positioning in
the race to autonomy
Page 56
Page 20
1
PitchBook Private Market PlayBook 3Q 2018
2
PitchBook Private Market PlayBook 3Q 2018
Perspectives
Contents
4
2
20
34
56
The Feature
Market Trends
Analyst Insights
30
Connecting leading companies
with today’s and tomorrow’s
industry leaders
EXECUTIVE SEARCH | COACHING | ADVISORY
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10250 Constellation Blvd. Suite 2300, Los Angeles, CA 90067
The future of urban mobility has two wheels (or so VCs think)
4-7
Barbarians repairing the gates? Why infrastructure is primed
for more PE investment
8-10
Cultivation in the skies: How vertical farming is aiming to
eliminate food deserts from the urban landscape
12-14
Looking past clichéd headlines and rethinking real estate
investment strategies
16-19
Smarter cities: How private markets are reshaping the
urban landscape
20-29
US venture capital
36-39
US private equity
40-43
European venture capital
44-47
European private equity
48-51
Global M&A
52-55
Uber's positioning in the race to autonomy
56-61
Performance persistence
62-64
Blockchain market map
66-69
Restaurant tech market map
70-73
A letter from the Editor
2
As the global population grows and urbanization intensifies, cities have
to become more efficient and sustainable. Companies and investors in
the private markets are helping to drive this transformation.
Twin Brook Q&A: Navigating the competitive middle-market
lending landscape
30-32
2
PitchBook Private Market PlayBook 3Q 2018
George Gaprindashvili
Editorial Director
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PitchBook Data, Inc.
John Gabbert
Founder, CEO
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Vice President, Market

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Dylan Cox
Senior Analyst, PE
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Private Market PlayBook
A letter from
the Editor
Cover illustration: Alessandro Gottardo
Timeline
22-Nov-2013
The urban landscape as we know it is shifting. Massive inflows of people
into increasingly populated metro areas are affecting housing prices,
traffic congestion, air pollution, energy usage, mobility, the quantity
of resources and a lot more. As the global population grows and
urbanization intensifies, cities are having to find solutions that lead to
increased efficiency, accessibility and sustainability. On the other hand,
new innovations, as well as investment in real estate and infrastructure,
are helping alleviate these issues and fueling an evolution in how cities
operate and how their residents live, work, play and get around.
Throughout this issue of our magazine, we cover several areas where
private companies—and the investors who back them—are making
an impact on the urban environment. In the Perspectives section, this
includes the topic of mobility and the meteoric rise of bike and scooter
startups like Lime, Bird and Mobike; and how one sector within agtech
is working to eliminate urban areas with limited access to affordable
healthy food options, known as food deserts.
Our Analyst Insights section includes coverage of Uber and its
positioning in the race to autonomy, as well as a market map of the
restaurant tech space, which categorizes the vertical into segments like
inventory management, food safety & sustainability and delivery.
The feature story focuses specifically on the urban technology
ecosystem, which includes six primary verticals: mobility, food/
restaurant tech, construction tech, real estate tech, shared spaces and
smart infrastructure. The article provides an overview of each space and
helps put into context how the activity within each segment is impacting
the overarching reshaping of today’s cities.
5
PitchBook Private Market PlayBook 3Q 2018
4
PitchBook Private Market PlayBook 3Q 2018
The future of urban
mobility has two wheels
(or so VCs think)
By Kevin Dowd
After more than 1,300 years of
existence, traffic and pollution were
overwhelming the ancient city
of Ghent. So in 1997, the second-
largest municipality in Belgium did
something drastic: It banned cars
from an 85-acre area at its city
center.
The move met significant initial
opposition—to the point that the
mayor began wearing a bulletproof
vest.
But in the past two decades,
the citizenry has come around.
A report from the European
Commission described the initiative
as a “great success,” and Ghent
began implementing a plan last
April to expand its regulation of
transportation even further.
With its commitment to pedestrians
and cyclists—and to a cleaner,
more sustainable way of living—
Ghent presents one vision of
what the city of the 21st century
could be. To various degrees and
with varying amounts of success,
other locales around the world are
following suit. From San Francisco
to Madrid, from London to Mexico
City, a movement is afoot to make
metropolitan centers less reliant
on the automobile and friendlier to
other ways of getting around.
And in recent months, an ever-
growing group of startups
providing novel forms of personal
mobility are raising billions of dollars
from venture capitalists (VCs) in an
effort to take advantage.
Bikes and scooters go boom
In the past two years, what was
at first a minor wave of funding
for startups in the bike-rental and
electric scooter spaces has turned
into a tsunami. Graphs of recent
global VC investment in the sectors
give new meaning to the phrase “up
and to the right.”
The amount of venture dollars
going into bikesharing companies
like Lime, Ofo, Mobike and Hellobike
has increased by at least 172%
each of the past five years, per the
PitchBook Platform, including a
jump of more than 300% each of
the past two years. And investment
isn’t slowing down in 2018, as the
industry’s leaders begin to establish
their market positions and expand
into an increasing roster of cities.
While there are certainly more
players in the bike-rental space,
the VC mania is perhaps best
encapsulated by the recent funding
history of a single scooter startup.
That would be Bird, a California-
based company launched last year
by former Uber executive Travis
VanderZanden.
In fewer than 18 months since its
launch—and by often deploying
the sort of act-first, ask-questions-
later philosophy that made Uber
infamous—Bird has collected a
staggering $418 million in VC
funding. Valued at $2 billion in June,
it reached a billion-dollar valuation
faster than any other current US
unicorn. Not bad for a business
whose product is still available in
fewer than 35 cities.
Most of these companies have
similar business models. They use
their enormous cash reserves to
build up their supply of dockless
bikes and/or scooters, then deploy
that inventory at a huge scale
across busy urban centers. The
aim for many is to solve the so-
called “last mile” problem, helping
travelers complete the final legs
of their trips after moving most of
the way by car, train or any other
method. For either a flat rate—
often $1 per ride—or as part of a
subscription, users can scan one
of the bikes or scooter with their
phones and ride to wherever they
need to go.
The sprint by venture investors
in these spaces mirrors the flood
of cash that companies like Uber,
Lyft, Grab and Didi Chuxing raised
several years ago as the ridehailing
industry established itself as an
economy-changing force. VCs are
enamored with startups aiming to
disrupt transportation. And at least
one reason for the love affair is
clear: Few other industries have the
power to so completely change the
way the world’s cities operate.
Startups vs. cities
Cities are full of people. Those
people need ways to get around.
And for millennia, the way they get
around has helped shape the way
those cities are designed.
One of the Roman Republic’s
earliest codes of law regulated
the width and upkeep of the city’s
growing network of roads, the main
method of transport for that era’s
carts and animals. Jump forward
a couple millennia to London and
New York, where the spread of
the Underground and the subway
system helped drive and organize
those cities’ rapid growth. And in
the 20th century, Los Angeles and
its never-ending sprawl of suburbs
are a clear example of a metropolis
built for the car.
Bike-rental and scooter-rental
services have a long way to go to
reach that sort of city-shaping level.
It’s quite possible they never will.
But in cities like Ghent, the changes
to the cityscape are already
occurring. In that case, as cars are
slowly pushed out of some of the
world’s busiest places, bike and
scooter startups only need to step
into a newly opened vacuum.
Perspectives
7
PitchBook Private Market PlayBook 3Q 2018
6
PitchBook Private Market PlayBook 3Q 2018
One of the headline issues from
the rise of ridehailing during the
previous decade was the way those
private startups interacted with
cities and other representatives
of the public sphere. Take, for
instance, Uber and Lyft’s ongoing
battle with New York City’s taxi
drivers. In August, the Big Apple
passed new regulations limiting the
number of ridehailing cars allowed
on its streets—a potential hindrance
to those companies’ ability to
generate piles of cash.
Already, bike and scooter
companies are facing similar issues.
Earlier this year, after startups like
Bird and Lime had already flooded
the city’s streets with scooters, San
Francisco passed a law regulating
their spread. Nashville issued a
cease and desist letter to Bird
after the company launched there
in May. The Seattle City Council
passed a new law in July charging
bike-rental startups for the right to
maintain their fleets there, the sort
of regulation that’s caused Chinese
companies like Ofo and Mobike to
pull out of several major markets
in the US. In August, Bird and Lime
halted their scooter offerings in
Santa Monica—Bird’s hometown—
after the city opted not to work
with the startups on a test program.
The presence of such test programs
in the first place, though, is a sign
that several cities are trying to find
ways to work with the new crush of
personal mobility startups. Denver
seized hundreds of illegally parked
Bird and Lime scooters when the
startups first began operating
there in June, but the city has since
begun a new pilot program that will
allow limited numbers of electric
bikes and scooters on its streets.
Portland, OR is in the midst of a
four-month test run with Bird and
fellow scooter startup Skip.
In most places, it seems, neither
side—the startups nor the cities—
wants it to be a battle. But they
do have different (and at times
competing) motivations. And then
there are the city-dwellers, who
Scooter deal value ($M)
Bikesharing deal value ($M)
# of scooter deals closed
# of bikesharing deals closed
$428$554$2,918$2,48026
22
43
26
0
5
10
15
20
25
30
35
40
45
50
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2010
2011
2012
2013
2014
2015
2016
2017
2018*
just want sidewalks free from the
clutter of a hundred technicolor
bikes. Much thinking, talking and
negotiating remains to be done
between the public and private
sectors if bike-rental and scooter-
rental services are to reach the
potential VCs see.
The electric future
By the time such questions are
resolved, however, it’s possible
many of those VCs will be cashed
out. If a recent spate of deals
pairing bike and scooter startups
with ridehailing giants are any
indication, the personal mobility
space could be on the brink of
serious consolidation.
Earlier this year, Uber acquired
electric bike startup JUMP for a
reported $200 million, and in July,
the ridehailing colossus announced
a partnership with Lime to make the
startup’s scooters available through
the Uber app. A week before
Uber’s Lime deal, Lyft acquired
Motivate, a major bikeshare
operator that operates specially
branded bikeshares in several
North American cities. And Didi
Chuxing (along with co-investor Ant
Financial) is reportedly considering
a $2 billion takeover of Ofo, the
bike-rental company in which Didi’s
has been a longtime investor.
Since the start of 2017, VC investors
have poured more than $6.3 billion
into bike-rental and scooter-rental
startups, creating a new herd of
unicorns in the process. Now, larger
and more powerful companies
are taking notice. They’re betting
that cities like Ghent will be the
model for the 21st century—that the
pollution and traffic of the car is on
VC global bikesharing & scooter investment
Most VC raised among bikesharing startups
Company
HQ
Total VC raised ($M)
Ofo
Beijing
$2,486
Hellobike
Shanghai
$1,533
Mobike
Beijing
$1,010
Lime
San Mateo, CA
$467
Ninebot
Beijing
$180
Bluegogo
Beijing
$90
Alta Motors
Brisbane, CA
$42
SpeedX
Beijing
$36
Superpedestrian
Cambridge, MA
$44
Zagster
Cambridge, MA
$34
Source: PitchBook
*As of August 8, 2018
Source: PitchBook
*As of August 21, 2018
its way out in major metropolitan
centers around the globe, and that
the era of shared transportation is
here.
It’s not a sure bet. Obstacles still
stand in their way. But if it pays
off, names like Lime and Bird could
become the Ford and Chevrolet of
the 21st century.
In most places, it seems, neither side—the startups nor
the cities—wants it to be a battle. But they do have
different (and at times competing) motivations.
9
PitchBook Private Market PlayBook 3Q 2018
8
PitchBook Private Market PlayBook 3Q 2018
Barbarians repairing
the gates? Why
infrastructure is primed
for more PE investment
By Adam Lewis
When PE firms make headlines, it
typically involves the closing of a
billion-dollar fund, the completion of
a billion-dollar deal or a PE-backed
company saddled with debt finally
going bankrupt.
Infrastructure fundraising on the
front page? Not so much.
But last year proved the exception
when Blackstone announced plans
to raise a $40 billion infrastructure
fund, with the Public Investment
Fund of Saudi Arabia pledging
to match up to $20 billion in
LP commitments. The fund’s
goal: Invest more than $100
billion in infrastructure projects
predominantly in the US, using
debt financing to come up with
the other $60 billion+. The vehicle
will reportedly target businesses
involved in midstream energy,
telecom, water and renewables, as
well as public-private partnerships.

The fundraising announcement
came more than a year after
Blackstone co-founder Stephen
Schwarzman first met with Saudi
Prince Mohammed bin Salman, the
chairman of the PIF, and urged him
to back Blackstone’s latest infra-
focused vehicle. Bin Salman agreed,
and, despite initial difficulties in
raising capital and a reported
power struggle over who would
ultimately control the investments,
Blackstone finally closed its first
round of fundraising on $5 billion
in 2Q, with the PIF investing $2.5
billion as promised.
Though it has yet to reveal any
investments, don’t expect the
vehicle to stay quiet for long.
Schwarzman said on the firm’s
most recent earnings call that the
infrastructure team in charge is
“fully in deployment mode and (is)
evaluating a pipeline of interesting
opportunities.” Former Blackstone
president Tony James, meanwhile,
said in a February interview that
fundraising could take a decade or
so, a rare timeframe in a PE world
where it typically takes an average
of about a year to raise a PE fund,
per the PitchBook Platform.
Improvements are needed for
aging highways, bridges and other
infrastructure across the globe.
That became especially apparent
in August, when a bridge collapsed
during a rainstorm in Genoa, Italy,
killing 39 people and prompting
Italian prime minister Giuseppe
Conte to declare a 12-month state
of emergency in the country’s
Liguria region.
Perhaps it’s no surprise alternative
investors are pouring capital into
infrastructure investments, which,
in general, typically involve less risk.
“Just the nature of core
infrastructure is that these are
stable investments that can
generate a stable set of returns,
which on a risk-adjusted basis
are quite attractive,” said Cherian
George, a managing director of
infrastructure & project finance
at Fitch Ratings. “You don’t have
the same boom or bust cycle that
you have in other sectors like
technology, retail and other things.”
Infrastructure investors have
been particularly busy this year.
Stonepeak Partners, a New York-
based firm headed by former
Blackstone execs, closed its third
infrastructure fund on a $7.2
billion hard cap in July, more
than doubling a predecessor that
brought in $3.5 billion in 2016.
Later that month, news broke that
Sweden’s EQT is planning to raise at
least ¤8 billion for an infrastructure
fund of its own.
The level of sustained fundraising
seen in the accompanying chart
bolsters a global infrastructure
sector that’s had capital pouring
in so far in 2018. Consider: 13
infrastructure funds have already
raised a combined $27.8 billion,
according to PitchBook data, on
pace to crush last year’s $31.1 billion
total. With a strong finish, this year
could surpass the largest annual
infrastructure fundraising total in
at least a decade, when 25 funds
nearly brought in some $40 billion
in 2016.
Why has infrastructure fundraising
surged?
The answer is multitiered, as
covered in a 2017 analyst note
from JP Morgan. Infrastructure
targets can be a bargain in today’s
high-valuation environment, and
these deals are often largely
independent of the volatility swings
that can affect other asset classes
including fixed income, equities
and real estate. Not to mention,
they provide steady cash flows
in many instances, with utilities
contracts, for example, that can
span 30 years. The sector can also
be more immune to an economic
downturn or inflation because of
the monopolies some infrastructure
companies (e.g., utilities) hold over
their respective markets.
There’s also a need for
infrastructure investment in the US,
in particular. The American Society
of Civil Engineers gave the US a
D+ in its 2017 report card grading
the country’s infrastructure, with
the cost to make the necessary
improvements estimated to be
worth nearly $4.6 trillion. Of all
the specific categories graded,
only “Rail” got better than a C+,
checking in with a B.
11
PitchBook Private Market PlayBook 3Q 2018
10
PitchBook Private Market PlayBook 3Q 2018
President Donald Trump has
pushed for increased infrastructure
spending, promising to introduce
a $500 billion infrastructure bill
during his 2016 campaign. But more
than 20 months into his presidency,
no such bill has materialized.
Granted, the administration made
a lackluster attempt earlier this
year, pledging $200 billion in
federal-backed funds that would go
toward grants and incentives over
the next decade. State and local
governments and private investors
would then come up with the rest,
in hopes of exceeding $1.5 trillion.
Trump called it “the biggest and
boldest infrastructure investment in
American history.”
“We will build gleaming new roads,
bridges, highways, railways, and
waterways all across our land,”
Trump said. “And we will do it with
American heart, and American
hands, and American grit.”
That sounds great, in theory. But
the US still needs to come up with
enough money.
“I think they are faced with the
same fundamental problem that
there isn’t a (public) revenue
source,” George said. “It should be
an easy thing to do, but it hasn’t
been.”
A Wharton School study out of
the University of Pennsylvania,
Trump’s alma mater, determined
that the package, even if somehow
funded, would come up more than
$1 trillion short of what’s needed.
But not doing anything could make
things much worse, with the ASCE
noting that failing to launch a major
infrastructure spending package
would lead to estimated losses of
$4 trillion in the US GDP and 2.5
million jobs by 2025.
It remains to be seen what role PE
will play in improving the country’s
public infrastructure, and not all
of the existing data about public-
private infrastructure projects is
positive. For instance, a 2014 report
from the Congressional Budget
Office found that of the 10 privately
financed road projects from 1995
to 2012, three filed for bankruptcy
and one needed to be bailed out by
the government with a private-to-
public buyout.
George, though, said the results
of public-to-private projects have
recently trended positive.
“It isn’t an all or nothing kind of
scenario,” he added. “Sometimes
when the projects don’t work out,
it’s because the government has
structured a project with the private
involvement in a way that can’t
be successful. And sometimes it’s
because the private sector fails
at it. But very often, it’s because
the public sector is trying to
find the best formula for private
involvement. That is the challenge.”
If an infrastructure package could
get passed in the next few years,
it would provide a PE industry
that’s been oft-criticized for
aggressive leveraging and lucrative
management fees the chance to
make an investment that could
benefit the greater good. And
in return, they’d still get a good
return on their investment, with
their limited partners coming away
happy.
Imagine a world where PE firms
were no longer just viewed as
corporate-raiding “barbarians”
that look to milk every penny
out of a business for a few years
before selling the scraps. Instead
of headlines about the lucrative
salaries pulled in by Schwarzman
and his rivals, attention might turn,
at least somewhat, to helping shape
the future of US infrastructure.
In the end, that alone could be
worth the risk.
The public
sector is trying
to find the
best formula
for private
involvement.
That is the
challenge.
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the board. States have been losing
revenue, and accordingly are making
individual calls. They are justified, after
all — they are only collecting on a tax
that currently nobody pays.
Why do high-growth companies face
bigger challenges than others?
As mentioned earlier, there has been
a significant shift in the past several
years when it comes to favoring
staying private for as long as possible.
That has contributed to the explosion
in the number of highly valued,
venture-backed private companies
that garner multiple headlines,
whether within the context of the
venture industry or merely for their
impact upon traditional industries. But
the fact of the matter is high-profile
companies will typically be targeted
for audit first. One of the trends we
see when we speak with state auditors
is that, as they determine which
businesses to pursue, they’ll look to
get a sense of customer segments and
evidence of those customers paying
sales tax. Given the inroads made by
relatively younger businesses into
more staid, traditional industries such
as enterprise software, there can be
double exposure on the part of the
new, fast-growing businesses that
are dominating headlines for their
transformative offerings, particularly
if they’ve been especially disruptive.
Let’s use Amazon as an example.
New York’s Amazon Law remains
one of the more infamous examples
of “click-through nexus”: Part of that
was because brick-and-mortar chains
fought hard to level the playing field
when it comes to ecommerce and
collection of sales tax. What that did
was end up incentivizing Amazon to
open up regional producers closer to
their customers in a given jurisdiction
so they’d be able to reap the
advantages of geographic proximity
With more attention being placed
on recovering sales tax revenue at
the federal and state level, why isn’t
it getting easier for companies to
address these issues?
Many companies view not paying sales
tax as a competitive advantage and
consequently are finding it difficult to
adjust. For a long time, it was simply
the case that nobody paid the tax,
even though it was on the books. But
now, states are looking to recoup
millions of dollars in uncollected sales
tax from ecommerce transactions.
Auditors are like anyone else — they
want to go out and find low-hanging
fruit. States view every such sales tax-
collecting issue as a potential nexus
situation, i.e. a case in which the target
company needs to prove whether
or not their presence is significantly
physical and thereby comes under the
determination of nexus as assessed
under the due process and commerce
clauses in the US Constitution.
When it comes to software and
services beyond retail alone, things
become considerably muddier. With
the recent decision by the Supreme
Court to turn down an appeal
challenging Colorado’s notice and
reporting regime — which requires
remote retailers to report in-state
sales to the Department of Revenue
and notify customers of their use tax
obligations — more states are likely to
jump on the bandwagon and adopt
similar proposals.
Adding to the difficulty, more and
more states are adopting a newer
definition of economic nexus when
it comes to sales tax to increase the
number of merchants eligible to
collect from buyers. Such measures
can depend solely on annual sales
as a metric. For example, Ohio has
Pat Falle
Chief Evangelist Officer
pat.falle@avalara.com
206-826-4900 ext. 1466
“People don’t look
at it this way, but
there’s no such thing
as a free sales tax.”
adopted a “factor presence test” for
determining what companies are
subject to the Commercial Activity Tax.
This basically means that businesses
with no connection at all to Ohio are
subject to the CAT if they have sales in
Ohio of at least $500,000.
Individual states are pursuing or
implementing their own initiatives
as, frankly, the federal government
has been sluggish about adopting
federal remote sales tax legislation,
which would standardize sales and use
tax collection and remittance across
Avalara’s Chief
Evangelist on how to
adapt
4
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PitchBook Private Market PlayBook 3Q 2018
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PitchBook Private Market PlayBook 3Q 2018
Cultivation in the skies:
How vertical farming
is aiming to eliminate
food deserts from the
urban landscape
By Adam Putz
A leafy green salad or a juicy
cheeseburger? For millions of
Americans, the question’s a no
brainer… and much of it has to do
with a lack of fresh produce at
affordable prices close to home.
According to the US Department
of Agriculture, food deserts are
defined as areas with limited access
to supermarkets, supercenters,
grocery stores, or other sources of
cheap, healthy food. These deserts
affect more than 20 million people
in the US, per a USDA estimate,
and they typically form in urban
population centers—particularly
low-income neighborhoods—as
major food retailers followed waves
of suburbanization to set up shop
further from city centers during
the latter half of the last century.
However, food deserts can crop
up anywhere with a pronounced
lack of accessibility to inexpensive
sources of nutrition, as measured
by the distance to a store or by the
number of stores in an area.
For those who must travel lengthy
distances to eat a healthy dinner,
there’s often no real choice
between buying ingredients for a
salad or grabbing a burger from the
fast-food joint around the corner.
And it’s not just Rust Belt cities like
Cleveland and Detroit that have
struggled to cope. San Francisco,
despite its tech wealth and relative
proximity to California’s Central
Valley, is also home to its own food
deserts such as Bayview-Hunters
Point.
But rapidly maturing agricultural
technologies like vertical farming
have already started to produce
food oases where deserts once
dominated by taking aim at the
twin problems that perpetuate
them: the amount of unhealthy
foods readily available nearby
and the relative inconvenience of
attaining cheap, nutritional options.
A novel form of mass agriculture
With supply chains that depend on
trucking produce into city centers,
sometimes from thousands of miles
away, conventional agriculture is
inefficient and expensive—to say
nothing of the carbon footprint
involved in shipping and storing
foods. Alternative methods of
production within cities are needed
to eliminate food deserts, and those
developments can’t come soon
enough; global production will need
to increase by 50% to feed another
2 billion people in 2050, according
to the UN’s Food and Agriculture
Organization.
But alternative methods of
production won’t solve everything.
A higher cost of living in urban areas
can also eat into disposable income,
resulting in even those with greater
means choosing unhealthy options
to trim expenses. That highlights
the need for alternative methods of
distribution within cities as another
way to drive down prices.
That’s where vertical farming
comes in—though the term, much
less the practice, hasn’t been
around long. Credit for the concept
has gone to retired Columbia
University medical school professor
Dickson Despommier for his 2010
book, “The Vertical Farm: Feeding
the World in the 21st Century.”
Just as the first farmers
domesticated cereals in nearby fields
before inventing techniques like
irrigation to improve yields, vertical
farmers have adapted existing indoor
ag methods to grow leafy greens in
tall warehouses and freighters using
advanced technologies like LEDs to
replace sunlight.
Vertical farming tackles inefficiencies
in production and distribution head
on by growing healthy food near to
where it’s sold. The evolution from
simpler forms of indoor ag, such as
growing tomatoes in greenhouses
or producing several tons of kale
in vertical farms, seemingly has
a parallel in humanity’s rise from
single-story dwellings to the boom
in skyscrapers 100 years ago—and
the engineering and technological
advancements are no less
impressive.
By reducing inputs, eliminating
crop protection products like
pesticides from and incorporating
machine learning tools into the
growing process to optimize water
and light levels, vertical farming
has also started to combat many of
the capital-intensive issues around
growing nutrient-rich produce.
Slowly but surely, companies
operating in the space will draw
down the price on fresh fruits and
vegetables grown vertically. In the
meantime, these companies have
also boosted their bottom lines by
targeting the cultivation of greens
that carry higher premiums.
Those financial benefits and
opportunities have lured deep-
pocketed backers to the industry to
cut some sizable checks. Venture
capital investment, including from
corporates, into greater agtech
last year represented roughly $1.9
billion across 238 completed deals.
Meanwhile, the indoor ag space rode
that investment wave to hit a peak
in 2017 of some $346 million across
37 financings. But the bulk of that
funding went to just one startup.
Plenty: SoftBank’s big bet on agtech
Last summer, SoftBank deployed
its massive Vision Fund to lead a
$200 million Series B for Bay Area-
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PitchBook Private Market PlayBook 3Q 2018
14
PitchBook Private Market PlayBook 3Q 2018
based Plenty. The deal represented
the Vision Fund’s first major foray
into agtech.
“By combining technology with
optimal agriculture methods,
Plenty is working to make ultra-
fresh, nutrient-rich food accessible
to everyone in an always-local
way that minimizes wastage from
transport,” said Masayoshi Son,
chairman & CEO of SoftBank, in
a news release. “We believe that
Plenty’s team will remake the
current food system to improve
people’s quality of life.”
Founded in 2013, Plenty raised
a $26 million Series A in 2016
from funds run by Amazon CEO
Jeff Bezos and former Alphabet
chairman Eric Schmidt alongside
the likes of Data Collective, DCM
Ventures and Finistere Ventures.
Like others operating in the space,
Plenty uses a tiny fraction—a
measly 1%—of the water deployed
on conventional farms and also
leverages machine learning, the
IoT and Big Data to optimize the
growing environment for crops
and minimize the energy used
in production. Plenty’s vertical
farms occupy a few-hundred-
thousand square feet—the indoor
equivalent to a few acres of open
field. Meanwhile, rows of arugula
and kale sprout not from soil but
columns covered in a growth
medium comprising recycled
bottles designed to hold roots in
place and deliver nutrients.
Plenty’s buildout with SoftBank’s
support should also encourage
investments into the companies
behind complementary agtech
solutions like sensors and precision
ag, the proprietary software
programs created to provide data
management and analytics for
monitoring water and nutrient
levels, along with the presence of
plant pathogens.
A greener future
From early on in their rise,
skyscrapers have been synonymous
with the growth of urban
populations. And from just as early
on, some architects and engineers
reveled at the prospect of farming
in the sky.
In 1909, Life magazine ran
an illustration by the popular
cartoonist Alanson Burton Walker
depicting a skyscraper containing
single family homes complete with
their own gardens.
Although quaint to contemporary
eyes, Walker’s depiction of
cultivation in the skies should no
longer feel so farfetched with
companies like Plenty starting
to bring comparable methods
closer to reality—developments
that could eventually result in the
elimination of food deserts from the
contemporary urban scene.
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Some 55% of the global population
currently inhabits urban areas, and
the UN estimates this figure will
jump to 68% by 2050.
Some 55% of the global population
currently inhabits urban areas,
and the UN estimates this figure
will jump to 68% by 2050. Mega-
cities of more than 10 million
inhabitants are expected to number
43 worldwide by 2030. These
cities will represent a long-term
investment play for firms focused
on the confluence of farming,
food and infrastructure, with
companies in vertical farming well-
positioned to capitalize on these
bets by cultivating a central role
for indoor ag in sustainable urban
development.
17
PitchBook Private Market PlayBook 3Q 2018
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PitchBook Private Market PlayBook 3Q 2018
Looking past clichéd
headlines and rethinking
real estate investment
strategies
By Garrett James Black
How has your city changed in the
past decade?
Looking around Seattle (where
PitchBook is headquartered),
many neighborhoods are nigh-
unrecognizable compared to a
decade ago. Construction cranes
abound as apartments and
townhomes and office complexes
arise.
These narratives are likely familiar—
headlines proclaiming the rise of
mega-cities and increasingly dense
city centers have proliferated
for years. However, narratives
persist long after reality changes.
In actuality, changes have been
afoot in many key areas, two
in particular—urbanization and
density. More importantly, how they
are changing is also set to impact
a critical source of funding for
development: private investors.
For several years now, private real
estate strategies in North America
have often tried to capitalize on
oft-discussed trends of millennials
eschewing suburbia for city life. But
demography is not destiny.
There’s a case to be made that
funds deploying capital or looking
to target hyped investment themes
should be wary of overexposure or
overinvestment in said trends, as
both macroeconomic and industry-
specific cycles in North America
look poised to shift or even reverse
in coming years. Suburbia may not
be dying after all; urbanization may
well slow down or at least even out.
But first, some background.
The real deal
PE strategies in real
estate can be roughly
classified into three
categories: core, value-
added and opportunistic.
Core strategies focus
on major top-tier urban
markets and established,
valuable properties;
value-added strategies
typically back projects
that will require some
renovation and source
in secondary markets—
somewhat smaller
metros; opportunistic
strategies may go further
afield into much smaller
cities and even back
distressed projects.
Post the financial crisis, real
estate markets were depressed
and interest rates fell to
unprecedented lows. Many global
institutional investors allocated
more capital to core real estate
strategies dedicated to exploring
opportunities in booming real
estate markets, primarily in mega-
metros such as New York, to
broaden their overall portfolio
exposures and combat the low-
yield environment.

In fact, the US has been a favored
region of international investors for
some time, given its institutional-
quality commercial real estate has
notched attractive, risk-adjusted
returns over the past 20 years,
according to JLL Research in July
2016. Allocation to private real
estate funds has hardly slackened
either—though it’s worth noting
that aggregate, annual tallies of
capital raised are still dwarfed by
pre-crisis figures, and 2017 saw a
notable decline from the two years
immediately prior.
Value-added real estate pools,
however, have stayed remarkably
stable in terms of capital raised
since 2014, ranging from $29 billion
to $32 billion each year since on
a global basis, per the PitchBook
platform.
Urbanization had been proceeding
at a much more sedate pace in
metropolises throughout the
20th century, regardless of these
recent capital allocations, but
with augmented monetary fuel,
increased densification became
more pronounced—even in city
centers.
Billions of dollars have been strewn
across quite a few locations in the
intervening years; however, the way
they’ve been deployed has changed
decidedly as investors respond to
the twin trends of densification and
urbanization. Whether the scars
of the recession were material or
emotional, millennials pursuing
apartments over single-family
homes, growing populations, and
faster-recovering urban centers all
propelled greater density.
Lagging by a customary few years,
private investment strategists
followed suit, helping fund luxury
multifamily housing, high-end
townhomes and condos, given
costs of land and development. An
increasing sprouting of mixed-use
buildings that aspired to capitalize
on preferences for walkability,
proximity, shorter commutes and
convenience also contributed to
increased density.
More and more, modern city
centers and neighborhoods began
to look eerily alike, characterized
by sleek glass facades and beams
of steel, trendy eateries sitting
below chic apartments, crowned by
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PitchBook Private Market PlayBook 3Q 2018
18
PitchBook Private Market PlayBook 3Q 2018
rooftop open areas with grills and
tables. But such amenities are costly
to build, and they consequently
lead to steep rental rates and
exorbitant valuations.
The shift to secondary strategies
As capital flooded in, the primary
real estate market heated up
steadily over the past decade.
Housing and commercial lease
prices began to creep up, with
skyrocketing rents in metropolitan
areas such as New York, Vancouver,
BC, and most notoriously San
Francisco. (Only just recently have
they begun to even out or decline.)
In pursuit of more reasonably priced
markets, funds began to hunt
further afield in what are deemed
secondary markets, such as Seattle,
Houston, Orlando and Atlanta.
Moreover, they also delved into
alternate niches.
To take two examples,
Blackstone recently purchased
14 manufactured housing
communities, and Canada Pension
Plan Investment Board and
Singaporean sovereign wealth fund
GIC entered into a joint venture
with multifamily real estate firm
Cortland Partners to renovate
8,000 to 10,000 Class B units
(midscale in terms of amenities and
size) in the US.
In fact, that last example not
only illustrates the extent to
which investors have embraced
multifamily opportunities, but it also
hints at the next stage for private
real estate strategies, which is
beginning to manifest in key areas.
Diversification and innovation
Much of the multifamily cycle in
core North American metro areas
consisted of building luxury units,
at least prior to 2015 or 2016. This
phenomenon is relatively cyclical
in nature, as rising prices and
consumer preferences in the wake of
the financial crisis encouraged such
a focus—particularly as high earners
proliferated across certain metros.
But every cycle turns, and as Class
A properties (i.e. higher-end) grew
pricier, Class B has become more
popular, even in secondary markets.
Thus, a new prong of evolution in
strategies has emerged beyond
the push to secondary markets: a
growing focus on diversity in the
class and types of properties, plus
rethought approaches to existing
properties, such as renovations of
assets to core status.
More reasonable prices and overall
population growth, in addition to hints
of consumers’ increased willingness
to live outside of the hyped hotspots
of the past decade, all contribute to a
conducive backdrop.
On top of that diversification, the
latest types of buildings designed
to cater to current preferences and
innovations in retail centers should
also be noted. As carnage in the
retail real estate market continues,
exemplified best by the slow death
of the traditional mall, builders are
reconfiguring shopping centers
around truly-essential-yet-still-
relatively-high-scale goods, such as
Whole Foods.
Moreover, businesses and builders
alike are striving to achieve a
harmonious blend between the
digital and the physical—think
eyeglass retailer Warby Parker’s
brick-and-mortar locations in city
neighborhoods, or online mattress
retailer Casper’s recent decision to
open 200 stores across the US.
Private real estate funds looking
to deploy capital are considering
the impact of such developing
trends and strategizing about
the need for or best method of
exposure, still looking primarily at
retail and residential as opposed
to commercial real estate, which
remains a tough sell. Such
considerations tend to be fledgling,
as the strategy is not necessarily
proven out, and such storefronts
typically cluster in pricey core
markets or increasingly pricey
secondary markets.
The case for concern
But are these strategies of pursuing
multifamily units in secondary
markets, Class B properties, and
niches still sustainable for the next
decade or more? Not necessarily.
To reiterate, demographics aren’t
quite destiny. The clichéd millennial
propensity for apartments in major
cities was certainly driven in part
by such centers’ quicker economic
recovery, while the plunge in home
purchases was driven by declining
incomes.
Consumer preferences have
shifted somewhat to favor living
in more urban areas, but there are
increasing indications that younger
demographics aren’t averse to
buying single-family units. The
clearest evidence was the red-hot
pricing for housing in secondary
markets such as Houston, Denver,
Minneapolis and Seattle, to name
just a few.
Furthermore, as recently noted in
Axios, 65% of American cities with
at least 250,000 people either lost
population last year or experienced
lower rates of growth, indicating a
reversion to suburban growth as
opposed to urban. The building-out
in suburbs of secondary markets
and the continued evolution of
workplace practices to allow
flexible, remote schedules also
persist as factors. In short, while
urbanization looks set to continue
relentlessly, density may well
decline slightly or even out at the
least.
Consumer preferences not having
shifted as much as headlines
Businesses and builders alike are striving to achieve a
harmonious blend between the digital and the physical.
Although interest rates are rising
at a relatively slow rate, they are
still rising, and moreover, new
construction costs are soaring due
to the ballooning price of timber,
steel and aluminum.
would have you think isn’t the only
macro trend to warrant concern.
Although interest rates are rising
at a relatively slow rate, they are
still rising, and moreover, new
construction costs are soaring due
to the ballooning price of timber,
steel and aluminum.
Economic growth in the US remains
at least robust, and global at least
steady, but demand for housing—if
not apartments—has slackened
recently. All in all, real estate
investors should be wary but also
cognizant that returns may well dip
lower in the future even despite
the macroeconomic environment,
given the changes in underlying
factors such as input costs, shifting
consumer preferences and refilled
inventories.
From a broader strategic
perspective, real estate PE fund
managers should bear in mind
that even a decade is insufficient
to gauge the certainty of a shift in
consumer preferences. Although
the seismic shift in retail is probably
permanent and adapting to
the new face of retail—select
locations backed by robust digital
platforms—will be critical, residential
markets aren’t solely about
multifamily. Single-family units
plus the ramping up of secondary
markets will also be trends worthy
of attention.
Ultimately and inevitably, however,
urbanization will persist across
many locations, and that will call for
a more diversified portfolio in terms
of class and geography.
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PitchBook Private Market PlayBook 3Q 2018
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PitchBook Private Market PlayBook 3Q 2018
Smarter cities: How private markets
are reshaping the urban landscape
continued >
By Anthony Mirhaydari
In Plato’s “Republic,” Socrates and his interlocutors have a conversation that was apparently
typical in ancient Greece. Is the soul immortal? Should we live a life focused on justice?
What is the path to true happiness? Heady stuff that’s been pondered for ages.
Socrates suggests exploring those issues on a larger scale, that of an entire city, to more
easily uncover the answers. Since a lack of self-awareness is apparently timeless, he
concludes that the philosophers should be king.
But the reasoning behind his method was sound: Cities, both large and small, are a window
into the human condition. They reflect the hopes and challenges of entire civilizations. And
they are a collective reflection of the values held by their people.
23
PitchBook Private Market PlayBook 3Q 2018
22
PitchBook Private Market PlayBook 3Q 2018
Right now, the urban cityscapes
can tell us a lot. In PitchBook’s
headquarters of Seattle, a
menagerie of rideshare bikes dot
the streets. The homeless cluster
in tents. Sandal-clad tech workers
buzz around in Ubers. Cranes fill the
sky. Thoroughfares are seemingly
always jammed. And city leaders
are struggling to address problems
that have been decades in the
making.
These observations are a
microcosm of larger issues in
play, such as densification and
infrastructure deficits. Examples of
how innovative technologies are
being used to solve old problems
with the limited resources at hand.
A reminder of the rise of Asia and
the languishing of the West. And
with brands such as Lime and
Lyft growing more ubiquitous,
a reminder that private market
companies and investors are
playing pivotal roles, within their
own particular areas, to collectively
push cities toward a more efficient
and sustainable future.
The stakes are high.

The American Society of Civil
Engineers (ASCE) gave the United
States a “D+” in its most recent
Infrastructure Report Card, warning,
“Deteriorating infrastructure is
impeding our ability to compete
in the thriving global economy,
and improvements are necessary
to ensure our country is built for
the future.” In a 2016 economic
study, the ASCE estimated that the
dilapidated state of the nation’s
roads, bridges and other critical
infrastructure will result in $3.9
trillion in losses to economic output,
$7 trillion in lost business sales and
2.5 million lost jobs by 2025.

This infrastructure is concentrated
in the urban cores, where airports,
marine ports, public parks, wireless
towers, petroleum pipelines, rail
lines and power transmission assets
are most densely distributed.
Much of that infrastructure was built
in the middle of the 20th century
when the nation’s population was
smaller and more widely dispersed.
In 1960, there were roughly 181
million US residents, according to
Census Bureau data, versus 309
million in 2010. Then, around 70% of
the population lived in urban cores.
By 2010, almost 81% did.

On a global scale, the United
Nations estimates that the world
population will swell: from 7.6 billion
souls last year to 8.6 billion in 2030,
9.8 billion in 2050 and 11.2 billion in
2100. In a separate study, the UN
estimated that while 55% of the
world’s population lives in urban
areas now, that proportion will
increase to 68% by 2050.

If you think your nearest city is
bustling now, just wait.

According to Bank of America
Merrill Lynch (BofAML), the United
States alone faces an estimated
$3.8 trillion infrastructure gap
acute burdens now via smarter,
more efficient usage. Enabled by
creative new “application layer”
innovations like predictive policing,
home automation systems, health
wearables, autonomous vehicles,
bike/scooter sharing and real-time
public transit information.

Efforts in this layer have been
mainly the focus of VC-backed
companies and their investors.

As for the deeper layer of actual hard
assets, PE-backed capital is ready to
work to put shovels in the ground
and widen roads, rebuild bridges and
update dilapidated water systems.
Because finding efficiencies will only
get us so far, and trillions will still
need to be spent.

Last year, Saudi Arabia’s Public
Investment Fund committed $20
billion toward Blackstone’s $40
billion fund targeting investments
mainly in US infrastructure, $5
billion of which closed recently
and is “in deployment mode.”
Stonepeak Infrastructure Partners
recently raised $7.2 billion
for its latest fund. Macquarie
Infrastructure and Real Assets, the
world’s largest infrastructure fund
manager with nearly $100 billion in
AUM committed to the space, also
recently raised $2.5 billion for its
Super Core Infrastructure Fund.
The need to change the way
cities look, feel and operate isn’t a
modern innovation.

British urban planner Ebenezer
Howard’s “Garden Cities of To-
morrow,” published in 1898, was an
effort to head off urban dystopia.
The book inspired Walt Disney
in the 1960s, who envisioned
what is today’s Epcot Center
theme park to instead be a living,
breathing “Experimental Prototype
Community of Tomorrow” that
would be an example to others and
end the scourge of crowded, dirty
and crime-filled cities.
Sidewalk Labs, an affiliate of Google
parent Alphabet, is experimenting
with urban innovation in Toronto and
is looking to build a new American
city “from the internet up” in the
hope of lowering the cost of living by
14% for an average family.

In a recent analysis, a global team
of analysts at McKinsey found
that adding digital intelligence
to existing urban systems could
improve key quality-of-life
indicators by 10% to 30%. Examples
include shortening emergency
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Urban population
Rural population
World urbanization
Source: UN Department of Economic and Social Affairs
Globally, the infrastructure gap is
estimated to total $18 trillion on
total investment of $79 trillion.
by 2040. They estimate that the
current public infrastructure market
is worth between $3 trillion and $4
trillion today and could double to
$8 trillion by 2030. Globally, the
infrastructure gap is estimated to
total $18 trillion on total investment
of $79 trillion.
With those types of sums in play,
capital is being increasingly drawn
to an area where financing was
typically borne by taxpayers via
elected officials and not private
enterprise. But that could be set to
change.

Private investment in infrastructure
assets totaled just $337 billion
last year, per BofAML, but 90%
of institutional investors plan to
increase their future allocation
to the asset class. It’s easy to see
why: Amid a “reach for yield”
dynamic, infrastructure assets offer
attractive returns, stable cash flows,
inflation protection, low default
rates and diversification benefits
via low correlations to other assets,
according to the CAIA Association.

The playbook looks something
like this: Leverage fundamental
technologies developed over the
last two economic cycles—smaller,
more powerful computers with
ubiquitous connectivity and cloud-
based storage/processing—to ease
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PitchBook Private Market PlayBook 3Q 2018
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PitchBook Private Market PlayBook 3Q 2018
Capital invested
since 2010
$36.4B
Completed deals
since 2010
2,187
Capital invested
since 2010
$21.5B
Completed deals
since 2010
1,684
Mobility
Companies developing solutions
designed to provide more accessible,
environmentally friendly, efficient and low-
cost transportation options.
Select companies:
ƒ Lyft
ƒ Lime
ƒ Bird
ƒ Cruise Automation

Most active investors:
ƒ Didi Chuxing (16)
ƒ Tiger Global (13)
ƒ Accel (12)
Food/
restaurant

Companies developing technology
intended to improve consumer experiences
around food selection, aid purchasing and
consumption, and help restaurants run more
streamlined operations.
Real estate
Companies developing and leveraging
technology intended to help facilitate the
purchase of, management of, maintenance
of and investment into both residential and
commercial real estate.
Select companies:
ƒ Instacart
ƒ Impossible Foods
ƒ Toast
ƒ Upserve
Most active investors:
ƒ 500 Startups (48)
ƒ Accel (28)
ƒ First Round
Capital (28)
ƒ Kima Ventures (28)
Select companies:
ƒ Opendoor
ƒ Compass
ƒ LendingHome
ƒ Bowery Valuation
Most active investors:
ƒ 500 Startups (41)
ƒ Thrive Capital (20)
Capital invested
Capital invested
2014
2018
2018
Capital invested
up each year
since 2012
Capital invested
since 2010
$70.5B
Completed deals
since 2010
470
2014
$2.9B
$6.6B
$18.6B
$12.1B
tech
tech
$26.4B
$8.9B
$3.8B
$3.2B
$5.6B
$1.7B
Capital invested
since 2010
$4.4B
Completed deals
since 2010
366
Capital invested since 2010
$6.4B
Completed deals since 2010
113
Shared
spaces
Companies designing, managing
and operating co-working and
co-living spaces to deliver
temporary and low-cost tenant
options, as well as provide
community-centric environments
that foster collaboration and
connected living.
Select companies:
ƒ WeWork
ƒ Ucommune
ƒ Common
ƒ Starcity
Most active investors:
ƒ Slow Ventures (5)
ƒ T. Rowe Price (4)
ƒ SOSV (4)
ƒ Benchmark (4)
ƒ Real Ventures (4)
ƒ JPMorgan Chase
& Company (4)
Construction
Companies building hardware and software
solutions intended to increase the efficiency
and productivity of operations related to
construction, building and infrastructure.
Smart
Companies leveraging innovative
technology to create or enable improved
facilities like roads, buildings and electric
grids, as well as more sustainable and
efficient systems to better manage traffic,
pollution, crime and more.
Select companies:
ƒ Katerra
ƒ 3DR
ƒ PlanGrid
ƒ BuildingConnected
Most active investors:
ƒ Brick & Mortar
Ventures (14)
ƒ Borealis
Ventures (11)
Select companies:
ƒ Mark43
ƒ Blueprint Power
ƒ Rubicon Global
Most active investors:
ƒ Plug and Play
Tech Center (14)
ƒ Kleiner Perkins (11)
ƒ New Enterprise
Associates (9)
ƒ High-Tech
Gründerfonds (9)
Record $3.5B
invested in 2017
Capital invested
2014
2018
Capital invested
since 2010
$10.5B
Completed deals
since 2010
1,025
$2.1B invested so far in 2018, on
pace to beat 2017's record $2.5B
$989M
$633M
tech
infrastructure
$342M
$353M
$484M
Data as of August 15, 2018 and includes venture capital and private equity transactions
27
PitchBook Private Market PlayBook 3Q 2018
26
PitchBook Private Market PlayBook 3Q 2018
response times, cutting commute
times, lowering disease burdens and
reducing greenhouse gas emissions.

A wide swath of research
extolls the economic benefits
of infrastructure investments,
making it a rare issue on which
Republicans and Democrats agree
(and subsequently raising the
specter of increased public funding,
such as President Donald Trump’s
proposed $1.5 trillion infrastructure
plan). For example, according to
the International Monetary Fund,
GI Hub and Oxford Economics, an
increase of 1% of GDP in investment
spending raises the level of output
by about 0.4% in the same year
and by 1.5% four years after the
increase.
To better understand this theme,
we’ve taxonomized the deployment
of new digital solutions into six
categories that we’ve dubbed the
“Urban Technology Ecosystem.”
Mirroring Socrates’ strategy, after
zooming out to examine the
problem writ large, it’s time to focus
in on how individual companies and
investors are affecting the larger
problem in their targeted areas—
similar to his examination of the
constituent parts and functional
classes of the well-ordered city.

Mobility
Survey data cited by BofAML
shows that, when people are asked
about infrastructure, roads and
highways are top of mind. They
are also the site of the largest
single component of the global
infrastructure gap, at $8 trillion of
the $18 trillion gap estimated by
2040. It’s also top of mind when
you think of private markets’
most visible, current impacts on
city centers, capturing everything
from dockless bikes and shareable
scooters to ridesharing services
and ongoing efforts to deploy
autonomous vehicles.

The overarching goal is to use
technology to reduce congestion
and foster faster, cheaper and
more environmentally friendly
ways to get around. Private market
investment activity in the space has
been red-hot, with $18.6 billion in
capital invested through August,
per the PitchBook platform, on
track to nearly match the $26.4
billion posted in 2016.

Companies active in the space
include ridesharing provider Lyft,
bikeshare-to-scooter-share icon
Lime, and GM’s autonomous driving
division Cruise Automation, which
the automaker purchased in 2016
for $1 billion. Key investors include
Chinese rideshare giant Didi Chuxing,
as well as Tiger Global and Accel.

Overall, BofAML estimates the
global transportation market—a $7
trillion industry—faces the threat
of significant disruption from
companies in this area amid crazy
inefficiencies. 95% of cars are parked
at any given time, cars cost up to
$8,500 a year to own and operate, 1.2
million people die per year in vehicles,
and automobiles generate 23% of
total CO2 emissions.

BofAML believes “the convergent
and mutually reinforcing trends of
electrification, autonomous driving,
the Internet of Cars (IoC) and
the sharing economy will drive a
fundamental shift from today’s car-
centric travel to a platform-centric
model whereby transport becomes
a utility.” Resulting in savings of
$3.8 trillion on everything from
less emissions to fewer accidents,
resulting in the creation of a new $1.5
trillion market in future mobility.

What does this future look like?
Consider Lime, which is reportedly
working on small electrical vehicles
dubbed “transit pods” to slot between
bikes and scooters and cars in urban
cores. Maybe encouraging a few to
leave their big SUVs at home.

Food and restaurant technology
We define food and restaurant
technology as companies
developing solutions to improve
experiences around food selection
and consumption. Everything from
burger-making machines to vertical
farming to restaurant reservation
apps. Overall, capital invested in
the space totaled $8.6 billion last
year, up from $7 billion in 2016 and
$5.1 billion in 2015, per PitchBook
data. The most active investors in
the space include 500 Startups
and Kima Ventures. Key companies
include Instacart and Upserve.
This category is best represented by
efforts to automate the stereotypical
job of the sleepy-eyed teenager:
the fast-food burger-flipper. And
VC-backed Creator’s restaurant-sized
burger-making robot is among those
bringing that dream into reality.

Formerly known as Momentum
Machines, the startup created a
machine that can take the constituent
components—raw beef, buns, whole
tomatoes and onions that it slices
itself—and pump out a $6 burger
that the company’s proponents claim
would cost between $12 and $18 at
an upscale restaurant.
Another is Toast, developer
of a cloud-based restaurant
management platform that facilitates
quick tableside ordering, menu
modifications and labor management
to streamline operations and bolster
revenues. The company raised a $115
million Series D in July led by T. Rowe
Price, lifting its post-valuation to $1.4
billion.
Shared spaces
By definition, space is limited in
urban cores. Which is why as soon
as the development of structural
steel enabled buildings to reach
to the heavens, skyscrapers have
been inexorably increasing their
floor counts. It started with the
10 floors of the Home Insurance
Building in Chicago in 1885. Now,
the Burj Khalifa in Dubai boasts
163 above-ground floors for a total
architectural height of 2,717 feet.

But impressive, new, super-tall
buildings are expensive and take
time—and lots of capital—to raise.
Which brings us to the shared
spaces vertical, where companies
are designing and operating co-
working and co-living spaces to
create environments that foster
collaboration and connected living
along with lower costs.

WeWork is a perfect example of
a company innovating in this area,
leasing space in major metropolitan
areas, building out unique offices
from Ho Chi Minh City to Lima
to Portland, and then subleasing
to gig economy and remote
work warriors. The company
completed its eighth capital raise
last August in a $3 billion deal led
by SoftBank’s Vision Fund, pushing
its post-valuation to just over $21
billion. Other companies in the
space include Chinese co-working
provider Ucommune and co-living
provider Common, which rents out
furnished and shared apartments to
a members-only community.

Overall, $3.5 billion was invested in
shared spaces last year in 31 deals,
up dramatically from the $1.1 billion
invested across 23 deals in 2016.
Smart infrastructure

When it comes to the nuts and
bolts that make cities run, such
as subway cars and bridges,
companies operating in the smart
infrastructure space are using
the latest digital technology to
ensure maximum efficiency can be
extracted from current resources—
flawed and insufficient as they are.

Consider that in New York City
over 1,000 miles of water mains are
The overarching goal is to use technology to reduce
congestion and foster faster, cheaper and more
environmentally friendly ways to get around.
Companies operating in the smart
infrastructure space are using
the latest digital technology to
ensure maximum efficiency can be
extracted from current resources—
flawed and insufficient as they are.
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PitchBook Private Market PlayBook 3Q 2018
28
PitchBook Private Market PlayBook 3Q 2018
more than 100 years old. Or that
more than 200 of the city’s public
school buildings were built before
1920, according to the Center for an
Urban Future.

Examples include sensors that
detect the speed and number of
vehicles on freeways, detecting
traffic jams automatically and
alerting drivers to take alternative
routes. Or roads that have
embedded temperature gauges
to warn of ice. Or magnetic field
sensors to determine whether a
streetside parking spot is open
or free. Or the deployment
of responsive appliances that
communicate with a smart electric
grid to do their washing and drying
during off-peak usage.
Another example of the
technologies in this area are smart
streetlamps that dynamically
adjust brightness when movement
is detected and change color
when an ambulance or fire truck
is approaching. Silver Springs
Networks, which was purchased by
Itron for $830 million in January,
develops software that allows
utilities to create networks of
intelligent streetlamps.
Investment in the space totaled
$2.5 billion last year and has already
nearly exceeded that amount so far in
2018—a dramatic increase from the $1.1
billion in deal value seen in 2016. Active
investors in the space include Plug and
Play Tech Center and Kleiner Perkins.

Companies to watch include
Mark43, a developer of public
safety software that enables law
enforcement officers to complete
their paperwork quicker and more
accurately. The company raised $38
million in a Series C round in March
in a deal led by General Catalyst
Partners and Breyer Capital for a
post-valuation of $190 million.

Construction technology

There’s simply no getting around the
fact that there aren’t enough homes.
According to McKinsey, by 2025
a third of urban dwellers—1.6
billion people—could struggle to
secure decent housing, forcing
many to decide between living in
substandard dwellings or becoming
financially stretched and cutting
back on other essentials, such
as healthcare. Replacing today’s
substandard buildings and creating
the new units needed by 2025
would require $9 trillion to $11
trillion in construction spending.
With land included, the total cost
could be $16 trillion.
But there is room for innovation.
By reducing construction costs,
housing affordability could improve
up to 16%. Examples include savings
associated with value engineering
(specifically, standardizing
architectural designs) and using
modular and prefabricated
techniques. By unlocking additional
land supply, through approaches
like allowing higher density, costs
could fall up to another 23%.

Companies in this vertical are
building hardware and software
solutions that increase the
efficiency of operations related to
construction and infrastructure.
Dealmaking has been accelerating,
with the 2018 year-to-date total
of $989 million nearly matching
2011’s $1.1 billion full-year result
and marked acceleration from the
$633 million posted in 2017. Active
investors include Brick & Mortar
Ventures and Borealis Ventures.

Companies in the space include
Katerra, developer of a construction
technology platform that eases
material ordering and manufacturing,
among other tasks, allowing builders
to optimize building development,
design and construction. Another
is Method Homes, which makes
modern prefabricated and
preengineered homes that result in
significant cost savings to traditional
site-build structures.
Real estate technology

The process of buying and selling a
home has become much easier with
the advent of tools such as Redfin
and Zillow. Both companies were
VC-backed, borne in the midst of the
housing bubble and have gone public
during the current expansion. Redfin
went public in 2017, and Zillow went
public back in 2011 followed by
several PIPE deals, including a 2014
investment by Tiger Global.

A number of startups share the aim
of leveraging technology to help
facilitate the purchase, management,
maintenance and investment into
both residential and commercial real
estate. Capital invested in the sector
totaled $6.6 billion last year across
343 deals, with 500 Startups and
Thrive Capital being the most active
investors.

Other companies active in the space
include Compass, which adds hands-
on curation by real estate agents to
online listings as well as additional
information on the characteristics
of the neighborhoods homes are
sitting within. The company raised a
$550 million Series E in December
led by SoftBank, for a post-valuation
of $2.2 billion.

The role of private capital
BofAML believes that with public
finances stretched across much of
the developed world—including
the United States, which is running
a budget deficit of $781 billion that
is adding to a $21.3 trillion national
debt—public-private partnerships
(PPPs) are likely to play a growing
role in solving the infrastructure
investment gap. These structures
allow PE and other sources of non-
taxpayer funding to contribute to
what they estimate will be a total
spend of $80 trillion on global
infrastructure through 2040.
PPPs are defined as “long-term
[contracts] between a private
party and a government entity, for
providing a public asset or service,”
according to the World Bank.
Examples of this strategy include
China’s “One Belt, One Road”
plan, President Trump’s proposed
$1.5 trillion Infrastructure Plan and
Europe’s ¤500 billion (about $569
billion) Juncker Plan.
It’s a mutually beneficial relationship.
Politicians are attracted to the
pools of capital. And investors are
attracted to the strong risk-adjusted
returns, reduced downside risks and
enhanced diversification benefit it
offers in relation to other asset classes.
Put more simply: PPPs lessen the
financial burden on governments to
provide funding for infrastructure in
exchange, oftentimes, for allowing
private enterprise to collect toll and
usage revenues. The use of PPPs
has increased in recent years, per
World Bank data.
The latest dynamic is the rise of
mega-funds, such as Blackstone’s
Infrastructure I fund, which is
targeting $40 billion, including the
aforementioned $20 billion anchor
commitment from Saudi Arabia’s PIF
(the largest single contribution of any
investor to an infrastructure fund).
From the city to the soul
Returning to Plato’s “Republic,”
no doubt Socrates and his friends
would be excited about the
prospects for increased happiness
and health as urban landscapes
are modernized and made more
efficient and sustainable. After all,
the motivation for their philosophical
exploration was a desire to improve
quality of life. Both internally, for
the soul, and externally, in our
interactions with others.
McKinsey believes smart cities,
benefiting from the deployment
of data and technology, can
make things better across several
domains: social connectedness,
environment, health, time, safety,
jobs and cost of living. For a city of
5 million, they estimate between 30
and 300 lives could be saved each
year.

The task won’t be easy. Socrates
admits, “beautiful things are indeed
difficult to attain.” But it surely
will be profitable for the private
market entities playing a growing
role in the ongoing saga of humans
working toward greater harmony
between themselves and the
environment around them.
For a city of 5 million, McKinsey
estimates between 30 to 300 lives
could be saved each year.
By reducing construction costs, housing affordability
could improve up to 16%.
31
PitchBook Private Market PlayBook 3Q 2018
30
PitchBook Private Market PlayBook 3Q 2018
Navigating the competitive
middle-market lending landscape
Garrett Ryan
Head of Capital Markets
Twin Brook Capital Partners
A Q&A with Twin Brook Capital Partners
Garrett Ryan is the head of capital markets for Twin Brook’s middle-market direct lending loan business.
Ryan has extensive knowledge of mid-market leveraged finance, institutional and high yield debt, and
asset based lending. Prior to joining Angelo Gordon in 2017, he spent eight years at Fifth Third Bank as the
head of healthcare debt capital markets. Prior to that, Ryan was with the finance company, CapitalSource,
and LaSalle Bank. He has 18 years of experience in capital markets and earned his finance degree from
University College Dublin and got his MBA from the Kellogg School of Management.
What do you consider the primary
challenge for a middle-market
lender in this competitive market?
The primary challenge that any
lending firm has in a “hot” credit
environment is that there are far
more sub-optimal transactions that
come to market. When (i) leverage
markets are awash with money, (ii)
PE firms are eager to deploy capital,
and (iii) purchase price multiples
are at an all-time high, these weaker
borrowers stand a much better
chance of trading and/or getting
financed. The outcome of this is
that we need to say “no” more
often to our sponsors or possibly
deploy resources triaging deals on
which we would not normally spend
time. The flood of weaker deals
can put pressure on resources and
underwriting bandwidth.
How do you think deal structures
have changed in the context of a
competitive market?
The answer somewhat depends on
what part of the lending market you
target, but the obvious changes are
around pricing and leverage, which
clearly have moved in issuers’ favor.
In some cases, lender protections,
such as financial covenants and
various negative covenants, have
The emergence
of cov-wide
transactions in the
last 12-18 months is
also alarming.
Execution, structure
flexibility and long-
term relationships
are the key
decisionmaking
factors for
borrowers.
Unitranches have
become a popular
alternative to
more traditional
two-party debt
structures.
also been weakened in recent
years. The absolute acceptance of
cov-lite transactions in the broadly
syndicated market (greater than
$40 million of EBITDA) as being
the norm is a distinct difference
between today and 2007-2008.
The emergence of cov-wide
transactions (greater than $25
million of EBITDA) in the last 12-18
months is also alarming. The lower
middle market (less than $25 million
of EBITDA) is somewhat immune
from these structures, but there is
always some level of pressure for
sponsors to push larger precedent
deal terms throughout the middle
market.
What kinds of US companies—in
terms of sector, size and needs—
are most attractive to private debt
lenders right now?
Given where we are in the cycle right
now, we believe it’s the companies
that showed strong resilience
through the great recession or
generally exhibit strong counter-
cyclical attributes. Having the right
financial sponsor associated with
these borrowers is also important,
not just for their expertise, but
their willingness to support the
company with follow-on capital, if
necessary. The size of the company
is less clear in its importance
because larger borrowers come
with very loose credit protections
(little or no financial covenants)
versus smaller companies which
have more traditional protections
in place but lack the scale of their
larger competitors. Software/tech,
healthcare or financial services,
are industry verticals that come to
mind that provide lenders comfort,
particularly in light of where we are
from a cycle perspective.

Does the amount of dry powder
in the market concern you? How
can the industry best mitigate the
impact of it?
I think it concerns everyone in the
market as it creates structuring
pressure on lenders, but we believe
execution, structure flexibility and
long-term relationships are the
key decision-making factors for
borrowers. The winners and losers
in private credit will be determined
by the depth of the lending team’s
experience, the strength of a
lender’s origination function and the
role the lender plays in a transaction.
If you have a well-established direct
originations function, rather than
relying on buying other lenders’
deals, we believe that bodes well
for long-term success. If your role
in these transactions is to act as
administrative agent, that should
also be helpful in the long term
for your strategy because you are
able to (i) deepen the relationship
with a sponsor, (ii) build a larger
and diverse portfolio of credits, (iii)
have more control over the credit
agreement, and (iv) generate more
capital market income than your
competitors.
Does the competitiveness of the
deal market dictate one preferred
financing structure over another?
In a market that demands
speed from buyers who need
to minimize lender processes
on their side, unitranches have
become a popular alternative to
more traditional two-party debt
structures. However, sponsors will
often opt for senior-subordinated
debt structures because they have
good relationships across both
senior and junior debt providers
and are comfortable coordinating
multiple tranches in the debt
structure. These days, sponsors
will typically ask lenders for term
sheets highlighting both options.
Ultimately, it comes down to
certainty, speed, flexibility and
price.
What role do the banks play in
the current debt market? Are US
private debt lenders more likely
to see them as competition or as
partners?
In the middle market, commercial
banks are struggling to maintain
relevance in the sponsor-lending
world. The regulations are a
significant time drag on their ability
to screen, underwrite and process
a transaction. Despite the new
33
PitchBook Private Market PlayBook 3Q 2018
32
PitchBook Private Market PlayBook 3Q 2018
About Twin Brook Capital Partners
Twin Brook Capital Partners is a finance company focused on providing cash
flow-based financing solutions for the middle market private equity community.
The firm is managed by highly experienced, dedicated professionals who have
successfully worked together throughout their careers at leading middle market lending institutions. Twin Brook’s
flexible product suite allows for tailored financing solutions for leveraged buyouts, recapitalizations, add-on
acquisitions, growth capital and other situations.
Twin Brook focuses on loans to private equity-owned companies with EBITDA between $3 million and $50 million,
with an emphasis on companies with $25 million of EBITDA and below. Since inception in the fourth quarter of
2014, Twin Brook has acted as Lead/Co-Lead Arranger on 90% of deals funded (2015-2018), acquired $6.5 billion
of committed capital, and closed 220 transactions.
For more information, visit twincp.com
The bright spot
is that there are
no indicators that
we are near a
recession.
administration, the relaxation of
Dodd-Frank and the overall tone of
less regulatory oversight, banks still
maintain that getting transactions
done is fraught with restrictions.
Separately from the regulations,
the banks are having a difficult
time competing on hold sizes, lack
of product offering (unitranches),
amortization terms, etc. Moreover,
it’s the overall lack of conviction
that most banks have around the
space. Finance companies are set
up with the sponsor at the center
of their reason to exist. For banks,
middle-market sponsor finance
is not what gets them excited.
Their focus is selling treasury
management, foreign exchange
and other non-interest-bearing
products. Credit is important to
them, of course, but their risk
tolerance is really geared toward
larger double-B or investment-
grade-rated companies to which
they can sell their traditional
banking products.

How do you think private debt
lenders can best prepare for a turn
in the credit cycle?
Without a doubt, we believe it comes
down to the size and experience of
the professional staff that a lender
employs. When the cycle hits, it’s
all about bandwidth. If an account
manager has 15-20 names for
which he or she is responsible and
just one of them goes sideways,
that’s an increased time constraint
on that individual. During a cycle,
that portfolio may have two-thirds
of those 20 names in triage for an
individual account manager. That
is not sustainable. However, for
lenders that have invested heavily
in personnel to manage through
the downturn, those lenders should
come out with better outcomes.
Twin Brook has a professional staff
of over 45 people and plans to add
another seven by year end. Our
preferred ratio of account managers
to borrowers is 1:6.

What is your biggest source of
optimism in the US private debt
market right now?
Despite the fact that the market
is somewhat frothy today with
price and structure clearly in favor
of borrowers, the bright spot for
lenders is that we believe there are
no indicators that we are near a
recession. In the event that a cycle
occurs, the US economy is likely
more insulated from the severity of
the shocks that occurred in 2008-
2009. Also, deal flow continues
to be strong. The first half of 2018
showed a significant increase in
M&A volume over previous periods
and the number of opportunities
in all segments of the market
continues to be robust. Despite
the amount of liquidity in the
market, we believe there are ample
opportunities for experienced
lenders to deploy capital.
See how the PitchBook Platform can
help VCs invest smarter.
demo@pitchbook.com
We do
pre-money valuations,
cap tables,
series terms,
custom search,
growth metrics.
You invest
in the next big thing.
35
PitchBook Private Market PlayBook 3Q 2018
34
PitchBook Private Market PlayBook 3Q 2018
Drawn from our flagship industry reports covering private equity,
venture capital and M&A, this section of the PlayBook contains
analysis and datasets summarizing the primary trends shaping
each market.
US venture capital
36-39
US private equity
40-43
European venture capital
44-47
European private equity
48-51
Global M&A
52-55
Market Trends
37
PitchBook Private Market PlayBook 3Q 2018
36
PitchBook Private Market PlayBook 3Q 2018
US venture capital
Overview
$37.1$27.0$31.3$44.4$41.7$47.4$71.9$82.2$75.6$81.9$57.54,716
4,470
5,388
6,738
7,865
9,244
10,509
10,606
8,939
8,815
3,997
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Deal value ($B)
# of deals closed
2018 deal value has surpassed six of past 10 years
US VC deal activity
PitchBook-NVCA Venture Monitor
*As of June 30, 2018
For an industry that has been
characterized by capital availability
over recent years, the first half
of 2018 has only exacerbated
feelings of excess with more capital
invested in a six-month timeframe
than any time in recent memory.
Through 2Q, $57.5 billion has
been invested in US VC-backed
companies, exceeding the full-
year total for six of the past 10
years. Beyond basic measures
of VC investment, 1H has also
seen 94 financings completed of
at least $100 million, 42 unicorn
financings—including seeing Bird
reach unicorn status in just 12
months—and the first close of the
largest US VC fund ever. To say
capital availability is high would be
putting the true state of the US VC
industry lightly.
US VC deals have continued to
grow in size, and not only at the
top end of the market. Angel &
seed deals this year have come
in at a median size of $825,000
and $2.1 million, respectively, each
a new decade-high figure for the
time being. And while mega-deals
continue to add an increasing bulk
to overall figures, smaller deal size
buckets are also gaining steam.
For example, early-stage deals
between $10 million and $25 million
are on pace to surpass $10 billion
in aggregate deal value this year,
which is the first time we have seen
that happen.
Nontraditional investors continue to
move into the market as well, with
2018 currently pacing to be the fifth
consecutive year that more than
1,500 deals were completed with
participation from these investors—
PE firms alone have been involved
in 368 VC deals already. These
deals have combined for over $36
billion of invested capital, roughly
63% of the total capital invested
in 1H. Nontraditional investors are
both a partial cause—VC funds
themselves have had more dry
powder with which to work over
the past few years than ever
before—and a result of companies
staying private longer. The
likelihood is high that these firms
continue to stay active within VC,
given that companies continue
to stay private longer while also
needing capital infusions to
continue growth. The average time
to exit in 2018 is 6.1 years from the
first VC financing the company has
raised. This figure has risen nearly
each year over the past decade,
and, coupled with the high capital
Unicorns set for record year
US unicorn activity
availability from VCs, is a reason for
the high increase in unicorns and
other high valuations.
Unicorns themselves have had an
active year in both dealmaking
and exits. 42 companies have
closed deals with a valuation of
at least $1 billion, pacing the year
to reach the previous high from
2015. As the number of unicorns
continues to grow, so do the paper
gains and the unrealized value still
illiquid from investors and LPs. For
unicorn rounds raised in 2018, the
average time between the new
funding and the company’s first VC
round has stayed above six years,
nearly as long as the average time
to exit. Though six US unicorns
have completed an exit this year,
and several others are waiting in
IPO registration, the extended risk
profiles will likely claim several
victims. This is something that
we have expected to happen,
especially as unicorns have
continued to raise further rounds
and grow in the private market.
Though exits overall have stayed
low relative to the 2014 and 2015
highs, more exits have been
completed this year than had been
at the same time period last year.
The median exit size has reached
$105 million, and the average
has surpassed $225 million, each
representing the highest exit
value figure we have tracked. The
average post-valuation of 2018
exits sits at $581 million after 1H,
more than double the value seen
in full-year 2016, and more than
$150 million higher than even
2017’s average value. Despite a
lower number of completed exits
than has been seen in the past, it’s
undeniable that capital is being
returned to investors, even if it may
be taking longer.
The fundraising environment,
which has stayed hot, may indicate
that exit timelines will continue
to lengthen and companies will
continue growth in the private
market. Eight funds have been
closed on at least $500 million,
including two larger than $1.3
billion. Though larger funds don’t
necessarily need a longer lifecycle,
the flexibility that is available
because of the extra capital allows
these investors to stay with private
companies and invest further into
the lifecycle of winners. With the
year pacing to see 320 new US
VC funds entering the market this
year, we don’t believe that current
trends will subside in the near term.
This year will likely become the fifth
straight year to record more than
$30 billion in new commitments,
adding dry powder to a market
already awash with capital.
Angel & seed
Series A
Series B
Series C
Series D+
3.1
3.9
5.2
6.8
8.2
0
1
2
3
4
5
6
7
8
9
10
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Companies aren't entering VC purview until later
Median US VC age (years) of companies by series
PitchBook-NVCA Venture Monitor
*As of June 30, 2018
$6.3$2.4$2.6$13.6$16.9$18.5$17.4$11.86
7
9
27
24
23
71
80
55
72
42
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
# of deals closed
PitchBook-NVCA Venture Monitor
*As of June 30, 2018
39
PitchBook Private Market PlayBook 3Q 2018
38
PitchBook Private Market PlayBook 3Q 2018
$28.7B
total exit value
closed through first
six months of 2018
2018 PACED TO
TOP $50 BILLION
Exits
US venture capital
$16.2$16.3$30.6$33.8$46.0$36.8$79.8$50.4$59.2$54.0$28.7484 482
697
738
869 893
1,073
1,012
879 853
419
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
# of exits closed
As hold times and valuations
continue to extend across the
board, the health of the exit market
grows in importance. So far in 2018,
we’ve seen some encouraging signs
with a strong first half of exit value
and steady valuation step-ups at
exit. With $28.7 billion of exit value
closed through the first six months,
2018 is pacing to top $50 billion for
the fifth straight year.
IPOs have been a bright spot in the
exit market, with activity primed
to closely match last year’s levels
on both a count and value basis.
This quarter was headlined by eight
companies debuting at a valuation
over $1 billion, with DocuSign
and Pluralsight topping that list.
At least one highly anticipated
IPO was scrapped, with Adaptive
Insights purchased by Workday
for $1.6 billion—more than double
the $627 million at which they
were planning to price the IPO.
This complemented some of the
high-profile IPOs that capped off
an exceptionally strong quarter for
enterprise software exits, which we
expect to, in turn, drive increased
deal activity in the space as that
capital is re-allocated.
While pharma & biotech IPO
activity usually makes up a majority
of the IPO count, the industry had
an especially robust June with 15
companies pricing, including a
record of 6 on a single day. Recent
strength in the public markets and
investor familiarity with the biotech
business model has pushed the IPO
window wide open, and VC-backed
companies are taking advantage of
the opportunity. In turn, this could
spur more activity by corporate
acquirers as they might look to pull
the trigger and acquire a company
before they have a chance for a
public listing to avoid paying a
premium on their public shares.
Corporate acquirers also have
tailwinds from the recent passage
of tax reform legislation, which we
expect to lead to an uptick in M&A
transactions in the short-term.
Alternative exits, particularly direct
secondary transactions and special
purpose acquisition companies
(SPACs), are areas we expected
to see have increased activity
throughout 2018 and beyond. In
June, we saw TPG announce its
new Tech Adjacencies Fund, which
is seeking $1.5 billion to target direct
secondary opportunities, expanding
its growth stage strategy into new
areas. This trend is predicated on
the fact that companies are raising
a larger number of VC financings
and delaying exits, as VC capital
availability allows rounds at virtually
any amount. While there have been
some encouraging signs from the
IPO market, the costs of operating
as a public company still loom as
deterrents for many large VC-
backed companies. The second
quarter contained both Spotify’s
unorthodox public listing as well as
a few more SPAC debuts, providing
further evidence that alternatives
are likely here to stay and even
more likely to evolve over the
coming years as the current market
cycle plays out.
PitchBook-NVCA Venture Monitor
*As of June 30, 2018
Exit value strong as activity stabilizes
US VC exit activity
Fundraising
After a slow start to fundraising in
2018, 2Q saw an uptick in activity.
VCs closed 72 funds with a total
of $10.8 billion raised during the
quarter. This brings both fund count
and capital raised in 2018 on pace
to surpass 2017 totals. The number
of micro-funds (funds sized $50
million or smaller) has declined
slightly in 2018, but we expect this
category to rebound in the second
half of the year as a number of open
funds approach their target sizes. In
the $100 million-$500 million range,
capital raised has increased at a
faster pace than other segments.
Successful closings of funds in this
bucket have increased from 40%
of total capital raised in 2014 to
56% in 2018. This trend likely ties
to elevated valuations of seed-
stage startups, driving VCs to raise
larger funds. According to recent
PitchBook analysis, larger funds
have proven to provide greater
returns. These market factors, in
addition to outsized returns, are
providing sufficient incentive for
LPs to continue to support VCs as
they raise ever larger funds.
The seed-stage ecosystem
has gone through significant
transformations over the past
several years. Whereas seed
investments were initially made
into startups at the earliest lifecycle
stages, the “seed” label has evolved
to include companies that have
achieved impressive levels of
traction and product development.
The potential for high returns has
attracted numerous new investors,
including angels, CVCs and VC
funds. With rising deal sizes and
valuations, some seed-stage VCs
have been faced with a dilemma:
Do they raise larger funds to stay
competitive, or do they exit the
seed market entirely? LVRHealth,
after raising four sub-$20 million
funds, decided to raise a fifth fund
at $100 million. Arena Ventures
has chosen the latter option,
pausing seed investing activities
“until the seed market corrects.”
We expect inflated valuations and
larger seed funds to continue as
greater amounts of capital continue
to be directed into early-stage
companies.
Another significant trend is the
decrease in mega-funds ($1 billion+)
raised. Total mega-fund funding
has declined from $11.4 billion in
2014 to $6.8 billion in 2017. Thus
far, 2018 appears to be in line with
previous years; however, seven
open mega-funds could reverse
this trend. Serpent Venture Capital
is raising the largest fund, with a
minimum fund size of $7 billion. If
all seven vehicles close this year,
it would bring total mega-fund
capital closed in 2018 to a new
high of $23.28 billion. The rise in
mega-funds is providing a much-
needed destination for the plentiful
LP capital available in the market.
Elevated aggregate distributions
to LPs and positive aggregate
net cash flows are driving larger
investments. The capacity to write
large checks will exacerbate the
trend of unicorns retaining private
status for longer. Lastly, we believe
many of these funds are taking
an approach similar to SoftBank’s
Vision Fund, adopting a meta-
view and attempting to capitalize
on mega-trends affecting entire
industries.
$31.7$12.1$19.8$25.7$24.4$21.1$36.2$36.8$41.1$34.6$20.2193
124
156
155
208
227
297 295
322
283
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Capital raised ($B)
# of funds closed
157
PitchBook-NVCA Venture Monitor
*As of June 30, 2018
Fundraising shows no sign of slowing
US VC fundraising activity
41
PitchBook Private Market PlayBook 3Q 2018
40
PitchBook Private Market PlayBook 3Q 2018
Overview
US private equity
$327.1$141.7$292.4$339.4$367.6$439.2$518.8$548.0$599.3$593.9$263.92,247
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Deal value ($B)
Estimated deal value ($B)
# of deals closed
# of estimated deals closed
2,781
1,920
2,806
3,167
3,550 3,463
4,266
4,422
4,386
4,421
Deal flow on pace for another strong year
US PE deal activity
Source: PitchBook
*As of June 30, 2018
The first half of 2018 proved to be a
hotbed for PE activity; 2,247 deals
were completed totaling $263.9
billion in value—representing a
2% increase in volume and a 6%
decrease in value compared to the
first half of 2017. Activity continues
to be driven by easy access to
credit and sustained strength in
fundraising that has resulted in a
buildup of dry powder. Notable
deals that were announced or
closed this quarter include Silver
Lake’s $3.5 billion take-private of
Blackhawk Network Holdings and
KKR’s $8.3 billion secondary buyout
(SBO) of BMC Software from Bain
and Golden Gate Capital, both
of which represent PE’s growing
interest in IT. We expect deal flow
to be continually strong in the
second half of 2018, due primarily
to the aforementioned dry powder
and easy access to debt financing.
Typically viewed as a hybrid
approach between buyouts and
VC, growth equity is an often-
overlooked portion of the PE
market. Through the first half of the
year, growth equity transactions
accounted for 23% of all PE
deals, on pace with its 10-year
trailing average of 22%. Non-
tech companies in the expansion
phase are often those that need
growth capital most. For example,
emergent consumer brands MOD
Pizza and Chobani raised growth
equity rounds in 1H 2018.
As the rate of PE deals has
increased in recent years, the
deal sizes have also tended to
be much larger. The median deal
size increased to $197.1 million
in 1H 2018, representing a 31%
increase over 2017’s full-year
figure. However, we expect the
most recent figure to be revised
downward since small deal values
generally take longer to collect;
nonetheless, the trend is clear.
Higher purchase-price multiples are
one factor driving deal sizes above
historic norms. Another catalyst is
the sizable step-up in fund sizes,
which have required managers
to pursue larger deals to deploy
capital efficiently. As a result, deals
under $25 million accounted for just
40% of deal flow in the first half of
2018—the lowest figure since 2007.
As deal sizes have been shifting, so
has the composition of PE target
companies. The proportion of PE
targets that were publicly traded
at the time of acquisition has been
cut in half, from a recent high of
2.9% in 2011 to just 1.4% through
the first half of 2018. Concurrently,
PE firms are now more likely to
source deals from companies with
VC backing (3.7% of deals in 1H
2018), coinciding with PE’s growing
interest in software businesses.
$38.8$21.7$33.4$34.5$34.6$42.9$61.4$47.4$49.6$68.4$25.0549
469
612
666 693
832
963 988 981
991
457
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
# of deals closed
$150.0
$197.1
$515.1
$488.1
$0
$100
$200
$300
$400
$500
$600
$700
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Median ($M)
Average ($M)
Growth equity has risen substantially in the last
decade
US PE growth equity activity
Source: PitchBook
*As of June 30, 2018
Buyout sizes continue to balloon
Median and average buyout size by year
Source: PitchBook
*As of June 30, 2018
$263.9B
total over 2,247 deals
in 2Q 2018