Key Takeaways
- • 2017 was the strongest fundraising year for private equity in a decade, and 2018 is on track to exceed it, according to EisnerAmper's Alternative Investment Summit panelists.
- • Fund managers must clearly articulate how they will drive value in platform investments, since high entry multiples leave less room for returns from multiple expansion.
- • LPs are increasing their demand for co-investment opportunities alongside GP-led funds.
- • Abundant seed capital and crowdfunding have created an exit bottleneck, with many early-stage companies raising seed funding but failing to reach a Series A or Series B round.
- • Institutional LPs will back first-time fund managers if the team has significant industry experience and a consistent track record.
Summary
Private equity fundraising remains at elevated levels. Speaking at EisnerAmper's third annual Alternative Investment Summit, panelists with backgrounds in private equity, venture capital and investment banking described the current environment as "frothy." General partners raised more capital in 2017 than in any year in the past decade, and 2018 is shaping up to surpass that level. Panelists said the abundance of capital has raised investor expectations, even for established managers on their third fund and beyond. Existing LPs may remain consistent, but they now expect more detail on how managers will create value.
To differentiate themselves, managers must clearly explain their investment strategy and competitive advantage. This is especially important given current valuation multiples, which make it harder to generate returns through purchase-price arbitrage. Panelists noted that LPs are increasingly seeking co-investment opportunities alongside GPs, which is adding another dimension to fundraising discussions.
The venture and early-stage segments face distinct pressures. The rise of crowdfunding and the broader availability of seed capital, including from corporate LPs looking to access innovative companies, have produced a difficult exit environment. Many early-stage companies have raised seed rounds but have not progressed to Series A or Series B financing, which constrains the liquidity available to investors.
For first-time fund managers, institutional LPs have shown willingness to commit capital when the management team demonstrates substantial industry experience and a positive, consistent track record. The article does not provide specific fundraising totals, fund sizes or named participants beyond the EisnerAmper summit.
To differentiate themselves, managers must clearly explain their investment strategy and competitive advantage. This is especially important given current valuation multiples, which make it harder to generate returns through purchase-price arbitrage. Panelists noted that LPs are increasingly seeking co-investment opportunities alongside GPs, which is adding another dimension to fundraising discussions.
The venture and early-stage segments face distinct pressures. The rise of crowdfunding and the broader availability of seed capital, including from corporate LPs looking to access innovative companies, have produced a difficult exit environment. Many early-stage companies have raised seed rounds but have not progressed to Series A or Series B financing, which constrains the liquidity available to investors.
For first-time fund managers, institutional LPs have shown willingness to commit capital when the management team demonstrates substantial industry experience and a positive, consistent track record. The article does not provide specific fundraising totals, fund sizes or named participants beyond the EisnerAmper summit.
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