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Private Equity and Venture Capital Industry Update

June 13, 2017

The private equity and venture capital industries are positioned for success for the rest of 2017 and the next five years, according to a recent report.

IBISWorld recently released a report which suggests that the private equity and venture capital industries are positioned for success the next five years or so. For the remainder of 2017 alone, IBISWorld expects the private equity industry revenue to grow 2.7% as investors continue to seek the fairly valuable returns offered by these types of investments.

Reasons for success

  • Institutional investors have increased their demands for alternative investments which has boosted assets under management.
  • Investors increasingly view funds started by larger, well-established companies as less risky.
  • The current financial market has allowed for investors to realize gains on prior positions and reinvest in other sectors.
  • More venture-backed IPOs and acquisitions have bolstered revenue from venture capital investments.

The next 5 years
IBISWorld predicts private equity industry revenue to increase at an annualized rate of 3.8%, and eventually reach $221.1 billion in 2022. A few other industry expectations:

  1. Institutional investors will continue to....
  2. Increase their investments in alternative asset classes as a form of diversification; and,
    • Achieve higher returns than traditional assets such as fixed-income, which has suffered because of low interest rates.
    • Recurring improvement in the private equity market.
  3. Growth in global capital markets will also boost revenue.
  4. New regulations and a higher tax burden will likely raise industry compliance costs, which will therefore negatively impact revenue.

Venture capital industry revenue is projected to rise at an annualized rate of 4.7%, reaching $36.9 billion in 2021. Some other predicted trends:

  • Financial markets will continue trending upward, boosting business activity and trading;
  • Through IPOs or acquisitions, investors can more easily exit investments.
  • Industry growth will be slightly delayed due to increased capital gains taxes and higher interest rates.
  • Investor uncertainty will be on the rise due to rising interest rates and domestic and global uncertainties.
  • Borrowing costs will also increase due to the rising interest rates.

Our Experience

We continue to see a robust level of activity within our client base in the lower middle and middle sectors of the market. Owners are continuing to see a window of opportunity to bring in the growth capital they need to bring their companies to the next level, either by bringing in a partner or selling out completely. Our PE/VC clients are actively seeking new investments and more and more we are seeing investors involved in the low end of the middle market, which traditionally has received less attention. In addition, we continue to see strategic investors being very active in the market as well, including domestic and international players.

There are a number of different options for financing growth, and navigating those options can be complicated. Although it appears that they will continue to see opportunities in this space for the next few years, certain economic and political factors could have a negative impact the timeline. For more information, feel free to contact us.

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