From the category archives:

PE & VC News

Pitchbook, the private equity data provider, is out with a fascinating new look at the companies headquartered in China with a valuation of $1 billion or more.  These companies are entities that surpassed the $1 billion valuation mark sometime in 2018.

Before looking, take a guess at which companies you think would show up on the list?  How many companies would you guess show up on the list?  Just a couple or hundreds?

If you don’t know the names of companies headquartered in China, take a guess at which sectors companies headquartered in China would achieve billion dollar status.  Would you guess most of the companies are tech companies?  Perhaps personal services companies?  Perhaps financial services companies?  Take your last guess, because Pitchbook’s data follows.

The List

The list follows.  Interestingly, the top spot is a company most readers here have probably never heard of – Meicai.  Meicai provides an e-commerce platform designed for farmers and restaurants.  Bet you didn’t see that one on top of your list!  Meicai reached unicorn status on January 11, 2018, with a valuation of $2.8 billion and raising $477 million on the funding round.

In second place is Caocao Zhuanche.  Founded in 2015, Caocao Zhuanche offers transportation services that create zero emissions and zero pollution, with the help of an electric vehicle.  The company was worth an estimated $1.6 billion in its latest funding round of $380 million.

In third place is Douyu.  Douyu provides a service similar to Youtube, offering a live-stream platform designed to share and add commentary videos.  Amazingly, the company raised $1.1 billion March 8, 2018, giving the company a value of $1.5 billion.

In fourth place is Qutoutiao.  Qutoutiao offers customers a personalized news recommendation intended for light reading.  The company was founded in just 2016, and as of March 15, 2018, had a valuation of $1.6 billion on a $200 million funding round.

Rounding out the top five is Youxia, with an estimated valuation as of March 31, 2018 of $1.9 billion on a funding round of $975 million.

The other seven members of the “China Group of 12″ include Cambricon ($2.5 billion valuation), Youdao ($1.11 billion valuation), Jollychic ($1.0 billion valuation), Luckin Coffee ($1.0 billion valuation), Babytree ($2.2 billion valuation), Bitmain ($12.0 billion valuation), and LinkDoc ($1.0 billion valuation).

Capture Source: Pitchbook

Conclusion

Overall, the private equity and venture capital business in China is growing, as evidenced by list of companies headquartered in China that have achieved unicorn status since the start of 2018.  In total, 12 China-based companies have grown to a valuation of $1 billion or more this year so far.  Presuming the global economy continues to grow and China continues to be a partial leader of that growth, there’s no doubt that this list will become larger in the coming years.

{ 0 comments }

Pitchbook, the private equity data provider, recently released their second quarter Playbook report.  In the report is a fascinating discussion on the gain in valuations by companies that are public versus private.

What Did Pitchbook Do?

What exactly did Pitchbook do?  The data collection company took a group of private technology companies, so-called unicorns ($1 billion or more in value) and divided their most recent funding valuation by the number of years in existence.  This gave them an idea of the average yearly gain in value since inception.

Pitchbook then selected a group of publicly traded technology companies and compared their market capitalization at the day of initial public offering to where the market caps had grown to.  This gain (or possible loss in value) was then divided by the number of years to get an idea of the average valuation gain per year.

The Results

What did the results show?  Reported in the following graphic are the results.  The figure is color-coded by whether a company is private or public.  Public companies are blue; private companies are red.

Interestingly, although not surprisingly, the company with the highest average annual appreciation in value was Facebook, adding almost $10 billion in value each year.

In second place is a private company, Uber – the ride-sharing service provider, having added about $8 billion in value each year.

In third place is Alphabet – the Google parent company – with an average annual value appreciation of almost $4 billion.

In fourth place was Airbnb, the home rental company, with an average annual value gain of about $3.6 billion.

Rounding out the top five was Groupon at $3.4 billion annual value appreciation.

The bottom five members of the top 10 included three privately valued companies (WeWork, Palantire Technologies, and SpaceX) and two publicly traded companies (Snap and Twitter).

Valuation Gain by Year on Average Source: Pitchbook

So, Does It Matter If You’re a Private Company When Created Enormous Value?

A close look at the figures produced by Pitchbook suggests at least one important question – do owners of a privately valued company need to go public to create enormous amounts of wealth?

The question is very relevant to the private equity and investment banking community.

Of the 39 companies researched by Pitchbook, 21 were privately valued and 18 were publicly traded.  The checkered nature of the figure suggests that staying private may be a good option for many companies, rather than turning to the public equity markets.

Whether to go public or stay private, of course, is a multi-billion dollar decision for many of these companies, and no doubt will include advice from more than just a few financial professionals.

Conclusion

Overall, in an interesting review of private company valuation gains compared to public company valuation gains, the difference in value appreciation between the two legal structures seems less stark as a casual observer might expect.  It appears owners of successful privately valued companies can generate enormous amounts of wealth without having to go public, something the investment banking world would rather not have known.

{ 0 comments }

Second buyouts (SBOs) are on the rise.  What are they and why are they doing so well?  Here’s a look, according to a fascinating new research note from private equity data provider Pitchbook.

What are Secondary Buyouts?

The topic is secondary buyouts, but what exactly are secondary buyouts?  In private company investing, there are often multiple owners of a company.  Suppose a company has received a growth equity investment from a private equity company, and then that private equity company decides to sell their stake in the business to a different private equity company.  This is a second buyout because it is one private equity company selling to a different private equity company.

The value of SBOs are hotly debated, with the debate generally centered around how a second private equity company can unlock value that the initial private equity company could not.  Some observers also argue that if an SBOs is completed, that it may take longer for general partners to realize value in the company.

What Is the Trend in Secondary Buyouts?

Having established what an SBO is, what does the trend in SBO activity look like?  The following is such a look.

The figure shows the global SBO value as a percentage of the total non-add-on leverage buyout-outs.  The data, shown through May 2018, shows a generally upward trend in the relative importance of SBOs to the private equity industry.

In North America (green), SBO’s take of the activity has risen from around 10 percent in 2002 to about 25 percent today.  Very similar figures are present for all activity.  Interestingly, the rise of SBOs as a percentage of non-add-on LBOs has risen more sharply in Europe, with the SBO percentage rising from around 10 percent in 2002 to about 30 percent today.

Capture1 Source: Pitchbook

What’s Behind the Trend?

With the background and trend now established, what might be causing the trend?

One theory is that private equity investors, in a search for profit maximization, are being pushed to embrace a buy-and-built strategy as a value creation lever, as opposed to a quick exit strategy.  This strategy shift could be being driven by increased competition within the private equity industry, as well as increased competition for investment dollars from outside the private equity industry.

A second theory as a causal factor is that the global median time to exit post-entrace via a SBO or a primary buyout (PBO) has increased relative to where it stood a decade ago, and part of this might be due to increased use of SBOs.  This theory is backed-up by the following Pitchbook graphic, depicting the median time to exit (in years) post-entrance fro PBOs and SBOs.

Capture2 Source: Pitchbook

Conclusion

Overall, in a fascinating look at private equity secondary buyout activity, a recent Pitchbook research note showed a surprising rise in the importance of second buyouts for overall deal activity.  What might be behind the rise is up for debate, but the trend in importance is clearly there, with no indication that the trend will reverse itself anytime soon.

{ 0 comments }

Will VC Values Continue to Explode Through 2018?

May 28, 2018

Happy Memorial Day!  Is there any better way to celebrate the day than to postulate on where venture capital (VC) valuations are heading  for the remainder of 2018?  Well, yes there is, but for the moment let’s think about valuations. Where Valuations Have Been First, here’s a look at Pitchbook’s recently released first quarter valuation […]

Read the full article →

Unicorn Companies – Fastest and Slowest to $1B

May 14, 2018

Private equity data collector Pitchbook is out with a fascinating look at which unicorn companies were the fastest to $1 billion in valuation and which were the slowest.  (For newbies, a unicorn company is one with a private valuation of $1 billion or more). Before taking a look, which 10 companies would you guess show […]

Read the full article →

Looking at CEO Pay to Employee Pay of Companies with Private Equity Ties

May 1, 2018

This past week Pitchbook released a fascinating look at CEO pay relative to employee pay for private companies backed by private equity (PE), venture capital (VC), or corporate venture capital (CVC). If you follow politics and the newest rule changes on requirements for public companies, you know that beginning this year public companies are required […]

Read the full article →

Top U.S. Cities for VC Investment Dollars and Returns

April 17, 2018

A couple of weeks ago we looked at ranking areas close to the San Francisco, California area according to the amount of investment from venture capital (VC) investors and the return (based on the median return on invested capital). This week we are looking at the same two numerical rankings – amount of attractive VC […]

Read the full article →

How Do the Bay Area’s Returns Vary By City?

April 3, 2018

Pitchbook, the private equity and venture capital data provider is out with a fascinating look at venture capital returns and venture investments by city within the Bay area (broader San Francisco area). Before looking at the map of amount of funds investment and the associated returns, take a guess at which cities you think would […]

Read the full article →

Who are the 20 Most Valuable Startups in the U.S.?

March 19, 2018

Pitchbook is out with their most recent list of the 20 most valuable venture capital-backed companies in the U.S.  We will take a look at which  companies show up on the list. The Top 5 The following is the top 5 most valuable companies backed by venture capital funding in the U.S.  Interesting, even after […]

Read the full article →

What are Global Ltd. Partners Most Concerned About in 2018?

March 5, 2018

We’re a couple months into 2018, and Private Equity International is out with survey results on the question – “What are global limited partners (LPs) most concerned about in 2018″? Before looking at the results, what would you guess the LP responses are?  Would you guess a recession?  Perhaps trade wars?  A terrorist attack?  A […]

Read the full article →
Real Time Web Analytics