Private Equity: PE Shops are Going on a Startup Spending Spree, Says Pitchbook

February 26, 2020 | News, Private Equity, Venture Capital

A new Pitchbook report shows that private equity shops are snapping up an interesting alternative investment. Flush with dry powder, PE shops have been snapping up VC-backed startups, according to a report from Pitchbook.

According to a new report, the number of PE buyouts of startups backed by VCs increased at an annual rate of 18.1% between 2000 and 2019. That is nearly double the annual growth rate of total buyouts during the same two-decade horizon.

Pitchbook suggests that the deals are linked to technology and high-growth businesses. No longer are PE shops solely focused on taking public firms private and engaging in a turnaround.

New Pitchbook Report on PE-VC Exits

The number of VC-backed firms remaining private under the PE tent is stunning. Last year, roughly 19.2% of all VC backed firms exited via a PE buyout. That figure was just 2.4% back in 2000.

“The proliferation of PE buyouts of VC-backed companies (referred to here as VC-to-PE buyouts) stems from PE firms seeking earlier exposure to tech companies that are often staying private for longer,” Pitchbook analysts said Monday. “While PE firms may not be specifically pursuing investment in VC-backed companies, the growing overlap between buyout barons and tech entrepreneurs appears here to stay.”

Pitchbook also said that these purchased companies would commonly find a new home quickly. The same report says that 63.6% of VC-to-PE buyout targets were ultimately sold to another firm. That figure is much higher than the traditional PE-to-PE buyout pipeline, which sits at a rate of about 50% of all PE portfolio company exits.

Recent: Fintech: Intuit Looks to Buy Credit Karma for About $7 Billion, Says WSJ

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