Every now and then Inc. magazine releases some interesting lists related to private equity and venture capital. They recently released their take on the top 50 most entrepreneur friendly companies in the U.S. The following is a map of such. Can you guess which companies are tops on the list?

Source: Inc. Magazine

Take your guesses now, because the list follows. Before looking at the list, is anyone surprised by the less-than-complete geographic dispersion of investing companies working with entrepreneurs? The middle of America has very few private equity and venture capital firms, comparatively speaking. The states of Utah and Colorado have a couple – other than that, all the top entrepreneurial friendly investing companies are headquartered along the east or west coast.

Have you taken your guesses? On to the list.

The List

The following table captures Inc. magazine’s top 50 most entrepreneurial friendly companies. The list is in no particular order.

The companies on the list with the largest target portfolio of companies

The list offers many ways to slice and dice the data. The first view captures the investing companies that have the largest target portfolio of companies. The companies on Inc. magazine’s list includes:

  • CCMP Capital, headquartered in New York, New York, with a target company size of between $250 million and $2 billion in enterprise value.
  • Permira, with locations in Menlo Park, California and New York, New York, targets companies with enterprise values of between $200 million and $5 billion.
  • Thomas H. Lee Partners, headquartered in Boston, Massachusetts, with a firm target size of between $250 million and $2.5 billion in enterprise value.
  • Trilantic North America, headquartered in New York, New York, with an enterprise target value of $100 million to $1 billion.
  • Wynnchurch Capital, headquartered in Rosemont, Illinois, with an annual revenue target for the target company of $50 million to $1 billion in annual revenue.

The two Midwest companies

Out of interest, can you guess which company headquartered in Utah is on the list and which company is headquartered in Colorado? Take a guess.

  • The Utah-based company is Tower Arch Capital, headquartered in Draper, Utah. Tower Arch Capital has a target annual revenue for target companies of between $20 million to $150 million.
  • The Colorado-based company is Mountaingate Capital. Mountaingate Capital has a company earnings before income taxes and depreciation (EBITDA) of $5 million to $25 million.

Some of the investing companies with the smallest targets

  • Clearview Capital, headquartered in Stamford, Connecticut, with a target EBITDA of between $4 million and $20 million.
  • JMI Equity, headquartered in Baltimore, Maryland and San Diego, California, with an annual revenue target of between $10 million and $50 million.
  • Palladium Equity Partners, headquartered in New York, New York, with an EBITDA of between $10 million and $75 million.
  • Prospect Partners, headquartered in Chicago, Illinois, with an annual revenue target of between $10 million and $75 million.
  • Ridgemont Equity Partners, headquartered in Charlotte, North Carolina, with an EBITDA target of between $5 million and $50 million.
  • Shorehill Capital, headquartered in Chicago, Illinois, with an EBITDA target of between $3 million and $15 million.
  • Source Capital, headquartered in Atlanta, Georgia, with an annual revenue target of between $10 million and $75 million.
  • Spell Capital, headquartered in Minneapolis, Minnesota, with an annual revenue target of $5 million and above.
  • Stripes, headquartered in New York, New York, with annual revenue target of $10 million and above.
  • Tecum Capital, headquartered in Wexford, Pennsylvania, with an EBITDA target of $3 million to $15 million.
  • TPG Growth, headquartered in San Francisco, California, with an annual revenue target of $15 million and above.
Source: Inc. Magazine

Conclusion

Overall, Inc. magazine has an interesting view of the top 50 most entrepreneur friendly investing companies in the U.S. Perhaps unsurprisingly, the list is heavily focused on investing companies along the east and west coasts. Perhaps next year – very likely next year – many other investing companies, such as the exploding investing scene in Austin, Texas – may show up on the list.

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The world of private equity is in constant flux. Anybody who has spent anytime with the high-minds in private equity would confirm this observation. The new question on the flux is this – Why are private equity (PEs) not keeping portfolio companies as long as they used to?

The question stems from a recent report out of private equity data provider Pitchbook, which showed that PE firms are just not as long of a holder of portfolio companies as they used to be.

The Data

The following Figure 1 is the data behind the question. The chart shows the PE holding times for the bottom quartile, the bottom decile, the median, the top quartile, and the top decile of PE companies. The time period covers 2009 to 2019.

Interestingly, holding times grew through the first half of the 2010s. For the top decile of private equity companies, the holding time went from a little less than 10 years to a peak of a little over ten years in 2016.

For the top quartile of companies, holding times consistently rose, from almost 6 years in 2009 to a peak of about 8 years in 2016.

For the median of PE companies, the holding time grew from a little less than 4 years to a peak of about 6 years in 2014.

The bottom quartile of companies saw their holding times grow from a little more than 2 years in 2009 to a peak in 2012 of just shy of 4 years. Since that time, the holding period for the bottom quartile of companies slowed declined, to its most recent bottom of 2.4 years in 2019.

The bottom decile of companies has the lowest holding period, going from just under 2 years in 2009 to a relatively flat 2.4 through the 2010s.

Source: Pitchbook

The Recent Downdrift

Depending upon which quintile a fund manager is in, the downward drift in holding period began in the mid-2010s. Interestingly, the downward drift is present across all deciles of fund manger performance. Perhaps more interesting is that the top quartile has seen the largest drop in holding period from its peak and the top decile of fund managers has a holding period that is still higher, at 10.6 years, than what it was in 2009, which was just shy of 10 years.

Why?

One potential explanation for the declining holding times is the improved liquidity of the inter-industry trading of portfolio companies. Prior to the onset of the 20th Century, it was virtually impossible for a PE fund manager to unload the holdings in his portfolio. With PE fund managers communicating more frequently, and the liquidity of the market improving, PE fund managers may be selling companies more frequently to other PE fund managers.

Another potential explanation is that PE fund mangers have become more jittery on the state of the economy. Given their concern about the state of the economy, fund managers may jump at opportunities to unload companies that they think may deteriorate in value should a recession occur.

A third possibility is that the types of companies making up an average PE portfolio are changing. In prior years, PE fund managers held less technology companies. That has changed. PE fund managers may simply be responding to the nature of the companies they are holding nowadays.

Conclusion

Overall, the holding period of companies for PEs is declining. Why PE fund managers are holding companies for fewer years is up for debate, with possible explanations including the nature of the PEs portfolios, the state of the economy, and the improved liquidity of inter-industry trading.

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What kind of decade was the 2010s for the venture capital and private equity industries? Good, bad, ugly? By most measures, the 2010s was an amazing decade to be involved in the high finance of investing.

Here are some of the most interesting charts put out by private equity data provider Pitchbook showing the ride we all (or most of us) saw over the past 10 years.

How much money did venture capital firms raise in the 2010s?

One of the more interesting questions of the decade deals with – you guessed it – money. How much money did venture capital firms raise in the 2010s? $100 billion, $500 billion, $ 1 trillion? The answer, according to Pitchbook, is a massive $553 billion.

Of this $553 billion in fundraising this past decade, about $121 billion was raised by firms that were relatively new to the arena, having been formed since 2010.

Also interesting is that only about $60 billion of the $553 billion was raised in 2019 and that firms started since 2010 raised $22 billion in 2019, approaching half of all fundraising last year.

The investing world is definitely changing.

Source: Pitchbook

Which firms saw the largest number of exits valued at over $1 billion?

Another fascinating finding of the Pitchbook report was the top firms with exits valued at $1 billion or more. Which firms would you guess show up on top?

Fascinatingly, the top firm in the 2020 was Sequoia at 54. Following Sequoia’s lead was Kleiner Perkins at 46 and NEA at 42. Rounding out the top 5 were Accel at 37 and T. Rowe Price at 34.

Source: Pitchbook

What did the VC exit picture look like by country in the 2010s?

The world changed a lot in the 2010s. Was venture activity in the U.S. still king still tops last decade? The answer is yes. In the 2010s, venture exits in the U.S. reached almost $322 billion. Growing quickly, but still far behind the U.S. was China at almost $178 billion. The rest of the world saw almost $71 billion in VC exit in the 2010s.

Source: Pitchbook

How was deal flow distributed by year?

Which year of the 2010s saw the most VC deal flow? Interestingly, the winner was 2018 with close to $300 billion in deal flow. In second place was 2019 at close to $250 billion. Rounding out the top 5 years were 2017 (about $175 billion), 2016 (about $150 billion), and 2015 (about $150 billion).

How did the 2010s do compared to the 1990s and 2000s?

Would you guess that VC activity in the 2010s was higher than in the 1990s or 2000s? The answer is the 2010s saw a good deal more VC fundraising in the 2010s compared to the prior two decades. The 1990s saw a little over $100 billion in activity, while the 2000s saw close to $400 billion. The 2010s saw $553 billion.

Source: Pitchbook

Conclusion

Overall, the 2010s was a great decade to be a venture capital or private equity investor.

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The Top Priorities of Private Equity Managers in 2020

January 6, 2020

What are the top priorities of private equity managers in 2020? Although the priorities may change by the minute, Lincoln International is out with a fascinating look at what private equity managers consider as their top priorities this year. Before looking, take a guess. Which priority would you guess comes in on top? Would it […]

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The 2020 Venture Capital Outlook May Be Record-Breaking

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5 Things the Labor Market Has Taught Us This Year

December 9, 2019

The financial industry’s success is intricately connected with the performance of the economy’s labor markets.  In 2019, the labor market taught us many things, here are five. #1 The Economy Can Boom During Trade Wars Perhaps the most surprising result of the 2019 year is the economy and its labor market can continue to boom […]

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Everyone Loves Tech – Including Private Equity

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An Amazing Year in Private Equity – Can 2020 Keep Things Going?

November 11, 2019

According to private equity data provider Pitchbook, 2019 has been an amazing year for private equity.  As of November 6, 2019, the total amount of capital raised by the private equity industry is at $246.3 billion.  Strong, incredibly strong.  In fact, according to Pitchbook, 2019 will be the largest private equity fundraising year ever. The […]

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Private Equity Valuations in Europe Are Taking a Breather

October 28, 2019

Private equity valuations in Europe are slowing, and the reason why is still up for speculation.  Some suggest that the breather in valuation growth stems from a slowing European economy; others suggest it has more to do with the private equity industry’s value proposition compared to competing financial investments.  A look follows.  Background The following […]

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Does Private Equity Really Not Boost Employment?

October 15, 2019

The American presidential election is a little over a year away.  With Democratic candidates trying to drum up support, they are again looking at the financial services industry.  And, perhaps the most common target within the broad financial services industry is private equity.  If one pays close attention, Democratic candidates have taken many shots at […]

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