Insights into Private Equity Careers and Venture Capital Careers

Of all the financial information released this past week around the world, perhaps the most important was the state of the U.S. labor market. Although still growing, the picture is getting weaker. Here’s a view of the American labor market in five charts.

Labor Force Participation Rate

The first view is the U.S. Labor Force Participation Rate (LFPR). The LFPR ticked down in October, to 62.7% from 62.8%. Interestingly, interest in working is still below its pre-pandemic peak of 63.3% and well below its all-time peak of 67.3% in early 2000.

For some reason, there’s less interest in working. Demographic shifts explain part of the downward drift. Lackluster job prospects certainly explains part of the drift, but certainly there’s something deeper going on here.

Job Growth is Still Strong

The second picture of the American jobs market is year-over-year growth in jobs. Job growth, at 1.9% year-over-year, is still healthy and growing faster than population growth (1.4%). With that said, growth is coming down quickly. Of course, a bullish take on the jobs market might suggest that at the current pace of deceleration, the American economy is more than 18 months from job losses. Healthy, very healthy.

The Unemployment Rate Continues to Rise

The third view is the Unemployment Rate and its 12-month moving average. As an ominous sign, the actual unemployment rate has been floating above its 12-month moving average since August. This typically occurs just prior to a recession signal. Just a word of caution.

The Older Generation Continues to Be a Force in the Labor Force

The fourth view is employment by age group. Before looking, of these age groups, which do you think would be the largest demographic in the labor force: 25 to 34, 35-44, 45-54, or 55 and over?

Fascinatingly, and this is only recently, the largest demographic group in the labor force are individuals aged 55 and over at around 38 million. Not far behind in second place are the 25 to 34 year olds at 35.9 million. Third place are the 35 to 44 year olds at 35.6 million. And rounding out the demographic groups are the 45 to 54 year olds at about 32 million.

By Industry

The fifth view is by industry. Interestingly, although somewhat sad, the fastest growing sector in 2023 has been State Government at 3.81%. Not far behind have been Education & Health Services at 3.48% and Federal Government at 2.68%.

On the other end, the Information sector continues to lose jobs (-2.98%) as does the Manufacturing sector (-0.11%).

Summing Up

Overall, the American labor market continue to chug along, albeit at a slower pace that suggests hiring is slowing significantly. Whether this indicates a pending recession is yet to be seen (of course), but the direction is heading towards such a situation.

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One of the hottest terms in the investing world today is generative artificial intelligence, sometimes shortened as Gen AI. Given the interest from the VC and PE world, here’s a look at private equity data provider Pitchbook’s take on the state of Gen AI investing.

The Overall Picture

The following figure has an overall look at the Gen AI picture from the first quarter of 2020 through the third quarter of 2023. The figure is short because Gen AI doesn’t have a long history of investor interest. As insiders well know, we’ve only recently had the computing power to bring many forms of Gen AI to the consumer.

Overall, on the number of deals, VC investment in Gen AI ticked down in the third quarter of this year to 101 deals. The number of deals, according to Pitchbook, peaked in the second quarter at 142, which was a marked rise from the first quarter deal count of 81. The number of deals has generally trended up over the past three years, going from 70 in the first quarter of 2020 to the most recent estimate of 101.

(As a note, some observers have found it somewhat odd that deal counts have not grown faster. The answer to this “curiosity” is that Gen AI deals tend to be focused on few companies because the amount of data needed to really perform Gen AI is massive, and as such, requires significant investment in the infrastructure to make the consumer facing component of Gen AI work.)

Deal Value

Shifting to the deal value, the total estimated deal value reached $6.1 billion in the third quarter of this year, a marked rise from the $4.4 billion in the second quarter. The only quarter to have seen stronger deal value was the first quarter of 2023, which saw deal value explode to $11 billion. Of course, one company was responsible for the massive jump – OpenAI. In the first quarter, OpenAI garnered $10 billion in support from mostly large investors (including corporate investing arms).

Prior to the incredible strong dollar figures of 2023, the previous peak in deal value occurred in the third quarter of 2021 at $2.8 billion. This seems quite small compared to the 2023 values, but one must remember that two companies accounted for the first and third quarter jumps in deal values – the previously-mentioned OpenAI and Amazon-backed Anthropic ($4 billion).

Summing Up

Overall, although generative AI dealmaking slowed in the third quarter of this year, venture capital interest in the sector continues to trend upwards. Time will tell whether the hype surrounding generative AI is worth an investment. The evidence up to this point suggests the answer is yes, but so has been the answer for past technological booms in specific sectors that eventually turned south.

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