Quick refresher on the private investment cycle. Venture capital and private equity firms raise a fund that will make in investments, typically in a specific industry segment, including health care. The funds are raised from wealthy individuals, companies, pension funds and some other investors. Private equity funds tend to be larger than venture capital ones. The funds make investments in companies at various stages of existence–startups, early stage, growing companies and those that are somewhat mature. After a few years, the funds are looking to get liquidity and exit their investment, which could be by a public offering, an acquisition by another company or even an acquistion by another venture capital or private equity firm. The money received in the liquidity event goes back to the investors, who hopefully like their return and will reinvest in another fund.
The focus recently has been on VC and PE exits, which have been slow, disrupting the cycle of providing investors with money to re-invest. Exit activity recently has tended to be concentrated among a few very large companies, often related to AI, and it is a struggle more broadly. And because of that, the raising of new funds is also slow. A new report on the third quarter VC and PE activity has a glimmer of hope. (PB Report)
Funds invested about $230 billion in 2466 deals, up somewhat from earlier in the year. There was less investment in information technology, including AI, and more in energy firms. The broadening of investment is a positive. There were 405 exits for $165 billion, also up somewhat from the prior quarters. And the exits appeared less concentrated in a few sectors or companies. Most were by acquisition. And back to the start of the cycle, 348 new funds raised about $222 billion, which was down from earlier in the year.
All in all, I would say that the private investment world is healthy, particularly as activity spreads more broadly outside of the AI obsession.
