Thematics Venture Vision Capital Markets Recovery Plays-110372166

M Global FoundationThematicsVenture Vision: Capital Markets Recovery PlaysMorgan Stanley & Co. International plc+Edward StanleyEquity Strategist Edward.Stanley@morganstanley.com +44 20 7425-0840 Matias OvrumEquity Strategist Matias.Ovrum@morganstanley.com +44 20 7425-9902 Our Venture Vision weeklies look at (1) early-stage cross-theme funding patterns; (2) relative valuations between themes; (3) public versus private valuations; and (4) the resulting anomalies within certain themes. Please let us know if you would like our excel database of >50,000 VC deals categorised by theme, country, value and date. We also send this file as a weekly distribution if you would like to receive it regularly. See here for our global market synopsis. See here for our longer analysis on the state of the VC market, particularly as it relates to non-US Venture and innovation acceleration. As capital markets inch towards a recovery, we demonstrate how wide the spectrum of recovery really is. M&A continues to lead IPOs in most regions and verticals. The US, Europe and Software show most momentum from their respective lows.Private market (and thematic investors) need a recovery in venture-backed exits. Yet, a recovery in exits is often discussed as if it is, or will be, a homogenous event. It won't be. It already isn't. AI/ML is the only venture vertical seeing positive funding momentum. For the rest of the market, there is a growing need to (1) break even, (2) consolidate or (3) find alternative funding paths. LPs are hungry for cash returns. Exhibit 1:VC capital deployed by sector and geographyAI & MLBig DataCleanTechClimate TechE-CommerceFinTechHealthTechLife SciencesWellnessManufacturingMobileMobility TechOncologySaaSTMTUnited StatesEuropeChinaGlobal-70.0%-60.0%-50.0%-40.0%-30.0%-20.0%-10.0%0.0%10.0%20.0%30.0%40.0%-80.0%-60.0%-40.0%-20.0%0.0%20.0%40.0%Current vs Trailing 24 monthsCurrent vs 5 Yr MedianSource: Pitchbook, Morgan Stanley ResearchGiven peak-to-trough falls in M&A and IPO activity levels, analysing the recovery from the lows can be a misleading figure. Consequently, we look at current activity levels relative to the 5-year median, as well as the current figure relative to 24-month trailing activity. • Deals done: On this basis, only US IPOs completed are positive on both metrics. Globally, while it's taking time for larger deals to emerge, deal activity has now inflected in each major market. China is also nearing a more meaningful momentum. • Value transacted: The value of IPOs remains lacklustre, however. Other than a modest recovery in biotech IPO value, all other geography and sector categories are still down more than 50% versus their 5-year median. US and software – largely in tandem – have started to see a healthy recovery in momentum relative to their 2-year trailing lull. These are, however, coming from a historically low base. China, Europe, Commercial Services and Internet IPO value have seen little movement fro