Introduction To Private Equity & Venture Capital #1: Ecosystem & Industry Dynamics

Summary

Claudia Zeisberger, a professor at INSEAD, introduces the world of private equity (PE) and venture capital (VC), highlighting their growth from a niche market to a significant asset class. She discusses the expansion of PE from the 70s to the present, comparing it with public equity markets, and notes the substantial 'dry powder' of undeployed capital. The lecture also touches on regional differences in PE investment, the impact of increased capital on deal pricing, and the fundamentals of PE investing: acquiring, growing, and selling companies for profit.

Takeaways

• 👋 Claudia Zeisberger introduces herself as a professor of entrepreneurship at INSEAD, focusing on private equity (PE) and venture capital (VC).
• 📈 Private equity has evolved significantly from a small industry in the 70s and 80s to a fast-growing and important asset class.
• 💹 From 2000 to 2019, the value of PE-owned companies has grown more than eight-fold, outpacing public market equities.
• 💼 Despite its growth, public debt and public equity still dominate global assets under management.
• 📊 Private equity sits within the broader financial market context alongside asset classes like real estate, commodities, debt, and public equity.
• 🏢 Key investors in PE and VC funds include sovereign wealth funds, pension plans, university endowments, investment banks, high net worth individuals, and sometimes retail investors.
• 🌍 The distribution of PE assets under management varies by region, with the US and Europe having a large proportion in buyouts, while Asia has a more balanced mix including significant VC investments in China.
• 💰 The concept of 'dry powder' refers to capital raised by PE funds but not yet deployed, amounting to about $1.5 trillion currently.
• 📉 Increased capital in the market has driven up entry pricing for PE deals, affecting returns.
• 🔄 Private equity involves acquiring an equity stake, growing the company, and exiting at a profit within the fund's lifetime.

Q & A

What is Claudia Zeisberger's role at INSEAD?

Claudia Zeisberger is a professor of entrepreneurship at INSEAD, focusing on private equity and venture capital.

What topics will be covered in the initial lectures of the video series?

The initial lectures will provide a high-level introduction to the institutional private equity market, applicable to both early stage venture capital funds and late stage private equity funds.

How has the private equity market grown since the 70s and 80s?

Private equity has grown from a cottage industry in the 70s and 80s to a fast-growing environment and a significant asset class for all limited partners (LPs).

How does the growth of private equity compare to public market equities from 2000 to 2019?

The value of private equity-owned companies has grown more than eight-fold, far outpacing the growth of public market equities.

What is the significance of dry powder in the private equity industry?

Dry powder refers to the capital raised by private equity funds that is still waiting to be deployed. It is significant because it indicates the amount of available capital looking for investment opportunities, which affects deal pricing and market dynamics.

What are the main types of investors in private equity and venture capital funds?

The main types of investors include sovereign wealth funds, pension plans, university endowments, investment banks, high net worth individuals, and sometimes retail investors.

How has the composition of private equity investments in Asia changed over recent years?

The composition of private equity investments in Asia includes one-third buyout, one-third growth equity, and one-third venture capital, with a significant portion of venture capital being concentrated in China.

What is the typical investment approach of growth equity funds?

Growth equity funds invest in fast-growing, often profitable companies by acquiring a minority stake. They are typically invited to invest for their experience and talent rather than for capital needs.

What impact has the increase in private equity dry powder had on market valuations?

The increase in dry powder has led to higher competition for deals, driving up entry valuations and EBITDA multiples for private equity acquisitions.

What are the three primary steps in the private equity business model?

The three primary steps in the private equity business model are acquiring an equity stake, growing the company, and exiting the investment, ideally at a profit.