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Morgan Stanley Research Global Foundation Summary

1. Key Findings Overview

• Listing Location Impact: Companies listing in the U.S. generally generate higher returns than those listing in their home markets (UK/Europe), especially for technology and biotech firms.

  • UK→US IPOs outperform UK-listed equivalents by ~5x on average one month post-launch.
  • European→US listings yield ~2x higher returns than European listings.

• IPO Pricing & Performance:

  • Upsized IPOs correlate with strong 1-month performance (+~22-40% average).
  • US-listed companies (regardless of origin) exhibit the strongest 1-month returns (~50%) when priced above the initial range.

• Deal Size & Market Cap:

  • Smaller-cap companies face structural challenges in European markets compared to the U.S., limiting access to larger funding rounds.
  • European companies above $10bn typically underperform their U.S.-listed counterparts, despite selecting a favorable listing location.

• Market Dynamics:

  • U.S. venture-backed valuations decreased ~18% YoY, lagging the 10-year Treasury yield inversion.
  • VC performance volatility increases in down-rounds or flat rounds, especially for early-stage firms.

2. Valuation Trends

Global VC Market

• VC Valuation YoY: U.S. VC valuations dropped ~18% YoY.
• Capital Raises: High correlation between VC funding volumes and macroeconomic policy shifts, varying by geography.
• Sector & Regional Performance: Europe and Asia lag in VC capital raised compared to the U.S., influenced by economic cycles and local demand.

Cross-Asset Comparison

• Long-term analysis shows high volatility across asset classes, with specific underperformance in emerging geographies and fixed income during certain cycles.
• Greater diversification improves risk-adjusted returns, especially with a significant allocation to VC and private markets.

3. Deal Activity

IPO & M&A Highlights

• Largest Deals: Topped ~$5.1bn, involving technology, healthcare, consumer goods.
• Down-Round Dominance: Recent VC activity shows over 50% of funding rounds are down or flat, signaling valuation pressure.

Largest VC & PE Transactions

• VC Notable Deals:
  • Colossal Labs ($100m funding), Stoke Space ($260m).
• PE Notable Deals:
  • Energy & infrastructure plays, including solar and storage projects, leading market shifts.

4. VC Metrics & Growth

• Annual VC Returns:

  • Median VC deals in 2024 (based on Refinitiv data) lagged general market indices.
  • Foundational tech firms with high R&D spend (e.g., AI, biotech) drove positive outlier returns in specific markets.

• Market Cycle Implications:

  • Emerging signs of increased competitiveness, especially from late-stage funding scarcity.
  • Trends toward lower valuations for startups in climate tech, healthcare, and consumer sectors.

Summary

The Morgan Stanley report underscores the critical role of geography in IPO performance, with U.S. listings delivering superior results. Valuation trends show a marked decline in VC-backed companies, exacerbated by high down-round funding. Geopolitical and macroeconomic shifts dominate investment strategy recalibration, supporting outbound capital flows and reshuffling of global VC activities within the Asia-Pacific and Europe. These observations suggest a clearer focus on mature tech sectors and differentiated market dynamics across geographies.