The Incredibly Expanding PE to VC Pipeline

March 2, 2020

The finance industry is always under construction. One of the most recent fascinating trends is the incredibly expanding private equity (PE) to venture capital (VC) pipeline. Private equity data provider Pitchbook is out with an interesting new note on the topic. Here’s a review.

Private Equity Buyouts as a Proportion of All VC Exits

The first fascinating chart from Pitchbook’s analysis is the proportion of all VC exits coming from PE buyout firms. In 2009, the proportion was a little over 10%. The figure was relatively flat from 2009 to 2013, barely budging from the sub-15%. Then, things picked up. In 2014, the proportion increase from about 12% to about 13%. The proportion increased again from 2014 to 2015 and again from 2015 to 2016. Still, even after consistent increases, the proportion of VC exits from PE buyout firms was still below 15%. Then the picture changed.

In 2017, the proportion jumped to about 19%. It jumped again in 2018 to 20%, the all-time high as of writing. In 2019, the PE-VC exit universe took a bit of a breather, dropping about a percent to 19%.

Overall, there’s an increasingly cozy connection between PE and VC.

Source: Pitchbook

Top Firms

The expansion of PE directly to VC-backed companies begs the question – Which firms are doing the deals? Luckily, the authors of the research note provided a top 10 list of VC-to-PE buyouts from 2000 to 2019. Take a guess before looking. Drum roll please …

On top is Vista Equity Partners. The investment firm, with offices in Austin, Chicago, New York, Oakland, and San Francisco, has more than $52 billion in capital commitments and made 66 VC-to-PE buyouts over the 20 years covered. Vista is by far the top investor in the VC-to-PE movement.

In second place is TA Associates Management at 40 tech deals and 4 non-tech deals.

Rounding out the top five are Providence Equity Partners (40 tech deals/2 non-tech deals), Thoma Bravo (37 tech deals/0 non-tech deals), and Insight Partners (34 tech deals/1 non-tech deal).

The other members of the top 10 include Francisco Partners (31 tech deals/1 non-tech deals), Silver Lake Management (29 tech deals/0 non-tech deals), Kohlberg Kravis Roberts (26 tech deals/9 non-tech deals), the Carlyle Group (25 tech deals/7 non-tech deals), and Warburg Pincus (25 tech deals/6 non-tech deals).

Source: Pitchbook

How Do the Buyout Deals Compare to the Other Type of Deals

Another interesting question answered in the note is the proportion of PE-VC-backed companies by type. The types include acquisition, buyout, IPO, and other. Perhaps the most striking finding from the following graphic is the 2019 figure. For most of its history, buyout firms were in the 15% to 35% range. In 2019, the buyout percentage of total PE-VC pipeline was more than 60%. The private and equity and venture capital worlds are definitely changing.

Source: Pitchbook

Conclusion

The interest from private equity in venture capital-backed companies is becoming ever more pronounced. Let the cozy relationships continue to blossom?

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