The first quarter of 2019 was an awesome start to the year for growth equity funds.  According to data from Private Equity International, growth equity funds saw $24.9 billion in fundraising.  The $24.9 billion is the strongest start to a year in the past ten years.  Prior to 2019, the strongest start was 2011 at $23.05 billion.

Other areas of the private equity universe have not done as well so far in 2019. The first quarter of 2019 for Fund of Funds was tiny at just $0.9 billion, the lowest fundraising total in the over the period shown.

Venture capital fundraising was also weak at just $5.9 billion.  The next weakest year over the past decade was Q1 2010 at $6.1 billion. 

The very weak first quarter for Fund of Funds and venture capital was almost matched by secondaries.  Fundraising for secondaries came in at $1.1 billion, second lowest in the past decade.  The weakest first quarter figure was in Q1 2009 at a dismal $0.6 billion.

Lastly, Other private equity investments, which includes co-investments, distressed, and turnaround investments, came in at $4.2 billion.  Compared to the past decade’s results, this was the third weakest.  The only two weaker first quarter figures were in 2011 and 2009 at $2.5 billion and $3.7 billion, respectively.

Source: Private Equity International

Is this an ominous signal for the rest of 2019?

The strong growth equity fundraising figures combined with the weak venture capital/Fund of Funds/secondaries/Other presents a conflicting story. 

Which one will win out?

If one uses the total fundraising figure and annualizes the first quarter’s results, 2019 is headed for a slightly weaker year than 2018.  This, of course, would mean that no collapsing years similar to 2009/2010 are on the horizon for the remainder of this year. 

Anyone willing to bet that 2019 will come in much weaker than 2018 when the end of the year arrives?  Does growth equity results have you scared off from betting on weakness? 

Oh, the loveliness of private equity fundraising and predicting future returns.

Source: Private Equity International

Conclusion

In looking at the first quarter of 2019, growth equity private equity funds have done quite well.  All other private equity categories haven’t fared as well, which presents us with an interesting question – Which category will be the leading indicator for the rest of 2019?

History belongs to the bold, those that can predict the future before it happens.  Which direction do you have for the remainder of this year?

{ 0 comments }

PE (private equity) and VC (venture capital) investors are steering away from opportunity zones.  Why? 

The Tax Cuts and Jobs Act of 2017 made the most significant form of tax reform in the past 30 years.  The bill reduced individual and corporate tax rates significantly, reducing the tax burden of the typical American family 20%.  It was an amazing feat of political achievement.

Within the new law is a not very well-known provision on “opportunity zones”. 

What are opportunity zones?  Opportunity zones are depressed economic areas – as defined by the federal government – where investors can invest their capital gains and avoid or defer capital gains tax. 

The exact provisions are detailed in the following table, provided by private equity data provider Pitchbook.  Essentially, an investor can defer their current capital gains for up to ten years by taking their current capital gains an investing that money in an opportunity zone fund.

An opportunity zone investment allows an investor to reduce their tax liability by 10 percent if held for five years and up to 15 percent if held by ten years or more. 

The tax benefits of an opportunity zone don’t stop there.  If you hold your additional gains from an opportunity zone investment in the fund for ten years or more, your gains in excess of the original investment become tax-exempt.  It’s such an incredible tax advantage that one might wonder why PE and VC investors would steer away from opportunity zones.  Can you guess why?

Source: Pitchbook, IRS

Why are PE and VC investors steering away from opportunity zones?

So, why would PE and VC investors be steering away from opportunity zones?  The answer lies in where the opportunity zone fund is generating income.  The income requirement states that over 50% of the opportunity zones’ business must be generated within the opportunity zone.  With technology and other early-stage companies looking for exponential growth, it’s likely that most of the companies’ revenue will come from outside of opportunity zones should the companies become success.  Thus, PE and VC investors don’t see much tax benefit in investing in opportunity zones.

Conclusion

Private equity and venture capital investors appear to be steering away from investing in opportunity zones.  Based upon the actions of investors and the current regulatory interpretations of the new law, it appears PE and VC investors are steering away from opportunity zones because of the income requirement.  Perhaps regulators will change their interpretation of the new law.  Until they do, it’s likely PE and VC investors will continue to shy away from opportunity zone funds for the foreseeable future. 

{ 0 comments }

Blockchain is all the rave in today’s early-stage investing world.  If you are in any way interested in the future of money or accounting or ledgers, it is impossible to avoid a discussion about blockchain.

Given the popularity of blockchain, can you guess which entities are the top 10 venture capital (VC) investors in blockchain?

Would you guess the list includes the big VC companies like Accel, Sequoia Capital, Kleiner Perkins Caufield & Byers, Benchmark, Greylock Partners, Andreessen Horowitz, or Bessemer Venture Partners?

Take your guess now because the top 10 list follows shortly.

The List

Source: Pitchbook

Interestingly, the top blockchain investor in the world is Digital Currency Group.  The VC firm has made an incredible 127 deals according to Pitchbook

In second place is Blockchain Capital at 57 deals.  Surprisingly, there’s a large difference between first and second place.

The other members of the top five include Pantera Capital at 56, Digital Horizon Capital at 38, and Fenbushi Capital at 36.

Places six through 10 belong to Plug and Play Tech Center (32 deals), 500 Startups (31 deals), Andreessen Horowitz (30 deals), NEO Global Capital (27 deals), and Boost VC (25 deals).

Are you surprised by the list?  Curiously, only one of the supposedly top VC firms shows up on the list – Andreessen Horowitz in eighth place.

What are the Biggest Blockchain VC Deals?

With the list established, let’s take a look at the biggest VC blockchain deals.

Can you guess which deals show up on top? 

As before, take your guess now because the list follows.

Source: Pitchbook

The largest blockchain deal ever, according to Pitchbook, is a $300 million investment in October 2018 in Coinbase.  The Series E investment gave the cryptocurrency company a massive $8 billion valuation.

In second place is Bakkt, a fellow cryptocurrency exchange.  A couple months after Coinbase’s $300 million funding round, Bakkt came in with a $183 million funding round. 

In third place is BlackTower, a hedge fund investing entirely in cryptocurrencies and digital assets.  The company announced in October 2018 that it had attracted a $140 million VC investment. 

Rounding out the top five are r3 at $122 million in May 2018 and Circle at $110 million in May 2018.

The other four companies on Pitchbook’s list include a previous investment in Coinbase in August 2017 at $108 million, a $103 million investment in Finova Financial in October 2017, a $101 million investment in Hedera Hashgraph in August 2018, and a $88 million investment in Forgerock in September 2017.

Conclusion

In an interesting review produced by Pitchbook, the top 10 investors in blockchain includes only one of the supposed top VC investing firms.  Overall, the top 10 investors have made a combined 459 deals. 

It’s a wonderful time to be interested in blockchain technology. 


{ 0 comments }

Some Thoughts on 2018 Results Heading with 10 Months Left in 2019

March 4, 2019

We’re a couple months into 2019, which means we are just now starting to get final 2018 figures.  Let’s see how well you know what the 2018 venture capital landscape looked like. First Question: How much did U.S.-based venture capital-backed companies raise in 2018? U.S.-based companies raised an astonishing $99.5 billion this past year.  Will […]

Read the full article →

Private Equity: Is the Edge Still There?

February 18, 2019

Private equity: is the edge still there? If you’re a private equity professional, this question is probably instills one of two feelings inside you. First, it could strike fear into your heart as you attempt to raise funds for new investments.  Why would people invest in an illiquid asset class if the promised return is […]

Read the full article →

Taking Stock of Where VC was at the End of 2018

February 4, 2019

If you were asked how the venture capital (VC) industry performed in 2018, what would you say? Red hot? Slowing? Just starting to boom? Sick of San Francisco? Private equity and venture capital data provider Pitchbook recently released their accounting of the state of the VC industry at the end of 2018. Here’s a look. […]

Read the full article →

2018 was a Massive Year for Buyouts

January 24, 2019

2018 was lots of things to lots of people.  Some may remember the year as the year America gained back respect from China by addressing its unfair trade practices.  Others may focus on the terrible fires in California.  Others may wish to focus on the positive, such as the amazing PyeongChang Winter Olympics.  Still others […]

Read the full article →

Who are the 25 Most Valuable Startups in the U.S.?

January 7, 2019

Every now and then we enjoy looking at the most valuable startups in the U.S.  It provides perspective and sometimes inspires awe at the state of American ingenuity.  Without further adieu, the list follows. But, before looking, can you guess which companies show up in the top 5?  Where would you guess the most valuable […]

Read the full article →

Could Take-Privates Spike in 2019?

December 24, 2018

In an interesting speculation on the state of the private equity universe, Adam Lewis of private-equity data provider Pitchbook is out with an interesting look take on the “take-privates” activity.  In particular, he speculates that the take-private activity will spike in 2019. Some Background Before getting into the reasons why take-private activity could spike in […]

Read the full article →

How Did Financial Employment Do in 2018?

December 10, 2018

The year is almost over.  As such, now seem like a good time to review how financial employment did in 2018. There are two charts here.  The first compares growth in financial employment with other major sectors.  The second compares growth in financial industry employment by president for the first almost 2 years in office. […]

Read the full article →
Real Time Web Analytics