Thematics Venture Vision Fed Cut; Cash Rip; Exit Flip-110454675

M Global FoundationThematicsVenture Vision: Fed Cut; Cash Rip; Exit FlipMorgan 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 our global market synopsis here. See here for our longer analysis on the state of the VC market, particularly as it relates to non-US Venture and innovation acceleration. The dotcom bubble's aftermath has a unique way of spoiling historical analyses. If one were to ignore it, we could conclude that a 50bps Fed cut is generally positive for capital and exits. We cannot, of course, ignore a period of history that has many of the same investing hallmarks as today.In spite of a 50bps cut by the Fed, our Economists and Strategists remain of the view that a soft-landing is not only achievable but is the base case. If this does materialise and/or is supplemented by further global easing measures then history suggests that: • 12 months after the first major cut of 50bps, capital deployment in venture/growth markets could be 15-40% higher than the level pre-cut. • Exit activity could also be 40-70% higher than pre-cut in the 24 months post cut; albeit, and disappointingly, in the 6 months post a major Fed cut, there tends to be very little change in overall exit activity in any cycle through history.Conversely, if a hard-landing were to materialise:• We could see a halving in venture/growth funding from here. However, we see this as extremely unlikely, given such a halving in activity has already occurred between 2021-2023 rather than waiting for post-Fed cut, as was the case post dotcom.• Exit activity could also be 40-60% lower in 2 years time, as measured by an average of IPO/M&A deal volume, value and valuations. This, again, we feel is highly unlikely, given we have seen such falls already from peak levels.Given how much has been de-risked as a result of a dearth in funding and exit activity post-2021, we think the set-up is far more likely to skew to the positive post-Fed outcomes depicted below than the negative ones – even if the landing is not as soft as hoped.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst cer