The fundraising market in 2015 was aggressively competitive with 1,630 PE funds on the road seeking $483 billion. This sent multiples in PE markets skyrocketing to almost dangerous levels, owing to increased volatility. In spite of this, the global financial markets saw the Private Equity and Venture Capital sector amass $4.2 trillion worth of assets under management as of June 2015, a solid 10.5% increase on 2014’s figure of $3.8 trillion (Source: Preqin Global PE and VC Report). The reported amount of total capital distributions in the first half of 2015 alone stands at a whopping $189 billion, demonstrating continuity with the record distributions seen in 2014. According to Forbes, this trend is most likely due to the fact that for a given private equity strategy, a lack of correlation to public markets increases traction for investors.
On a precautionary note, the major actors in PE should not get complacent in the wake of past successes, as a maturing PE industry will have to deal with the evils of generational change and the rising risk of recession. Embracing change within their proved success models and learning from the new players in the form of disrupting industries will help the industry prepare for any major shifts that might come along.
Preqin’s Global PE and VC Report from January 2016 reveals that the aggregate value of venture capital deals increased for the third successive year to $135.8 billion, up 45.2% from 2014 and more than double the level of 2013. The number of deals, though, saw a slight decline (9,202 deals) compared to last two years (9,785 in 2013 and 9,811 in 2014). 2016 marks the fourth consecutive year in which private capital fundraising surpassed the $500 billion mark.
In spite of this relatively solid performance, geographical divergences continue to grow. Asia has seen a significant rise in VC activity, as Greater China recorded 1,605 deals, surpassing Europe (1,373) for the first time, while India recorded 927 deals, almost twice the number of 2014 (512). Across the ocean, although aggregate deal value in North America increased, the number of deals in the region fell 23%, from 5,587 in 2014 to 4,307 in 2015. Similarly, Europe had its second annual decline from a peak of 2,002 in 2013, and the lowest number of deals in the region since 2010.
On the financing level, 2015 saw 9,202 VC financings worth a combined $135.8 billion. This represents a 6% drop from the 9,811 deals in 2014, but a 45% increase on the $93.5 billion aggregate value recorded during the same period.
However, overall VC exit activity declined for the first time since the financial crisis in 2008. The number of exits decreased from 1,138 in 2014 to 1,052 in 2015, while the total exit value shrunk by 41%, from $125.1 billion to $73.3 billion. More than two thirds of total global exits – 739, to be more precise – were achieved through a trade sale, and the number of IPOs and follow-ons dropped to 215 in 2015 from 248 of 2014.
With the number of startup businesses across the world increasing at a dizzying rate, the requirement for innovative finance tools is not going to trend downwards. But with new forms of financing like equity crowdfunding starting to gain momentum, inertia towards adaptability might spell impending doom, no matter how large or successful the firm is. But in the end, no matter where the markets are headed, the smartest and most prepared players will find innovative ways to deal with their problems and earn the right to raise increasingly more money to move forward.
This is part of our series articles in the International Corporate Finance Report.