Private equity firms are increasingly buying out venture capital-backed companies, according to a report from Pitchbook.
Indeed, between 2000 and 2019, the number of venture to private equity buyouts grew at a compounded annual growth rate of 18.1 per cent, compared with buyouts overall which only grew at 9.5 per cent.
According to the report, founders and shareholders of venture capital-backed companies increasingly see a buyout from a private equity firm as a viable exit strategy, with 19.2 per cent of U.S. venture capital exits occurring that way in 2019. In the early 2000s, less than five per cent of venture capital-backed companies were scooped up from private equity firms.
“An overabundance of capital in private markets and low interest rates have allowed private companies to readily access funding and borrow at historically low rates,” the report said. “This has led to a new crop of VC-backed acquisition targets that are more mature—in terms of revenues, headcount and valuations—than in past decades.”
Part of the proliferation of buyouts is the increasing number of tech-focused private equity firms, keen to spend money on the tech-heavy, venture capital-backed space. These tech-focused firms have been outperforming their private equity peers of late and limited partners are allocating more and more capital to them. As well, more general private equity firms are formulating tech-specific funds, adding to the demand, the research said. “Some of these firms are buyout specialists, while others are primarily growth equity firms which participate in buyouts of companies with growth characteristics.”