Equity Capital Markets Update – January 2026

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Growth Capital Volume This Year Outpaced Prior Year, Valuations Continue Strong Rebound

Key Takeaways:

The Equity Capital Raising market improved in 2025, led by companies that integrate artificial intelligence (AI) into their product offerings. Other tariff-resistant sectors also experienced growth.
Valuations climbed towards their 2021 highs and “A” and “B+” companies were able to complete transactions on favorable terms.
Tariff and interest rate policies ended with more certainty in Q4 2025 than in Q1, and the Private Capital markets are well positioned for a strong 2026.
Capstone expects improvements in valuation, terms, and deal volume to continue into next year, with signals that the breadth in the market rebound is widening.

2025 was the strongest year for growth equity deployment since 2021. Through 2025, equity capital investments in late-stage private companies reached $350 billion, surpassing levels seen in recent years. Part of the volume increase was caused by larger transactions in AI and data center companies, but even without these deals 2025 volume landed ahead of 2024. The year saw 43 transactions above $1 billion compared to 32 in 2024.

Other active sectors in growth equity financing include Professional Services and Aerospace and Defense (A&D). The Professional Services sector, which includes companies in consulting, accounting, financial advisory, and insurance, recorded 194 transactions in 2025, up from 170 in 2024. Growth equity investors have continued to show strong interest in professional services businesses due to high operating margins, AI implementation opportunities, and inorganic growth potential. Capstone Partners expects activity in this sector to remain robust in 2026.

The current geopolitical climate has focused investors’ interests on A&D technologies—which include cybersecurity, satellite communications, rare-earth materials, and offensive technologies. The current administration has made a top priority of securing domestic industrial defense production. This year saw multiple public/private partnerships, including the Department of Defense’s (DoD) $18.5 million investment in The Partner Companies’ subsidiary Lattice Materials in December 2025, the DoD’s $400 million investment in MP Materials (NYSE:MP) in July 2025, and the Department of Commerce’s announced transaction with Vulcan Elements (August 2025, $65 million).

Capstone expects that the theme of supporting the Defense supply chain with a movement to domestic manufacturing will continue into 2026. Companies that make components for Defense, Aerospace, and other domestically-sensitive sectors are well-positioned to benefit from decoupling global supply chains and U.S. companies looking to source domestically. Historically, manufacturing companies skewed towards control sales, although 2025 saw an increase in manufacturing capital raises as investors sought exposure to tariff-resistant business models. IN 2025, there were 179 manufacturing capital raise transactions, up from 155 in 2024.

Capstone anticipates that investor focus on A&D companies will remain topical in 2026. Capstone witnessed this focus first-hand in November when it advised The Partner Companies (TPC), a U.S.-based advanced manufacturing company selling to the A&D sector, on its $100+ million equity investment from Tensile Capital Management (Tensile).

Valuations remained elevated in 2025, signaling sustained investor confidence and a stable late-stage funding environment. Median valuations for North American transactions reached $260 million, compared to $200 million in 2024 and slightly above the 2021 level of $250 million. This continued improvement reflects robust investor sentiment, improving public market comparables, and continued demand for high-growth opportunities, particularly in AI-driven sectors.

Financing structures have continued to evolve to meet the financing needs of companies. With interest rates still elevated and tariff-exposed sectors still challenged, there remains a need for creative structuring between capital raisers and providers. A large portion of structural creativity has been explored to fund the continued data center expansion. Recent examples include Equinix’s (Nasdaq:EQIX) $15 billion joint venture (JV) with GIC (sovereign wealth fund of the Government of Singapore) and Canada Pension Plan Investment Board (CPP Investments) announced in October 2024, and Digital Realty’s (NYSE:DLR) $7 billion JV with Blackstone (NYSE:BX) announced in December 2023.

Equity investments that have more bespoke terms—“structured equity”—can be a compelling solution for companies in a variety of situations including

Companies in performance transitions or in sectors with secular headwinds: terms can typically be constructed to bridge a valuation gap between companies and investors.
Companies that do not wish to take on bank debt: this typically includes companies with strong operating performance that either have sufficient existing senior debt, or those that wish to avoid cash-pay interest but still want to minimize the dilution associated with traditional growth equity.
Companies that are acquisitive: structured equity solutions provide flexible capital to support a company’s inorganic growth strategy.
Companies receiving secondary proceeds via minority recapitalization: this is typically reserved for companies with strong operating performance that want to simplify their ownership structure or redeem older shareholders.

Terms included in structured equity solutions may include:

Contractual dividends: either cash, paid-in-kind (PIK), or a combination.
Redeemable preferred stock rather than traditional convertible preferred stock: the redemption feature provides downside protection to the investor which enables them to offer a less dilutive solution compared to traditional growth equity.
Valuation ratchet or “give-backs”: sometimes valuation can be structurally adjusted based on performance. This can either be used as protection in a downside scenario or a return of economics to the company if management outperforms.

Equity capital raises and mergers and acquisitions (M&A). Minority-stake capital is a flexible type of financing that can be a useful tool for entrepreneurs who are managing their own liquidity prior to a full sale. If a business owner is considering an exit but does not think today is the optimal time, they can sell a minority stake to a growth equity investor today, followed by a full exit in two to three years. By doing so, the business owner can still receive liquidity, diversify their personal risk, and receive a value-add partner to help scale the business prior to a sale.

Private equity (PE) fundraising volumes and fund count hit five-year lows. Fund count has declined each year since 2021, as limited partners (LPs) concentrate commitments with established managers amid limited exits and distributions. Through 2025, U.S. PE and growth equity funds raised $166 billion across 262 vehicles, down from $219 billion across 413 vehicles during the prior year. Despite the broader slowdown, growth equity has emerged as a bright spot.

Growth equity funds remained a significant portion of the PE landscape in 2025. Growth funds have accounted for 22% of U.S. PE capital raised in 2025—the highest level in three years and a meaningful increase from the prior year (18%). Investor appetite for growth-oriented strategies has remained strong, with growth capital representing 10.4% of total PE deal value as of Q3 2025, above the 10-year average of 9.8%, according to PitchBook. ¹

The rise in growth equity funds relative to the decline in traditional buyout fundraising signals a structural shift in capital allocation. More capital is concentrating among fewer managers, reducing appetite for smaller transactions. At the same time, growth equity firms have scaled meaningfully: 24% of all growth funds now exceed $1 billion in size, up from just 10% in 2020 and 4% in 2015. This reflects a clear shift toward larger vehicles and bigger check sizes.

Heading into 2026, Capstone expects the continued improvement in private markets to permit more exits for PE managers, allowing them to recycle capital to LPs. This should set the stage for an improved fundraising environment, likely in the second half of 2026, that will likely disproportionately bolster smaller or newer funds.

Outlook for 2026

Following an improving environment for capital raising in 2025, Capstone’s Equity Capital Markets team anticipates that 2026 will bring new opportunities for companies seeking growth capital, particularly along the following themes:

Companies that are scaled enough to raise more than $50 million will have an easier time finding investors than companies that are seeking lower check sizes. Growth equity funds will continue to increase in size and prioritize companies with scaled EBITDA ($10 million or higher).
Investors will remain flexible. As has been the case in recent years, investors are rigid in company quality, but flexible in terms, sizing, and ownership stake. Capstone believes that there will be continued interest from buyout firms in minority-stake transactions and ample interest from “hybrid” investors who can provide equity with debt-like pricing.
Tariff uncertainty will continue to ease. The year 2025 saw a prioritization of companies that manufacture domestically or are otherwise insulated from U.S. tariff policy. As the current administration continues to narrow its trade focus, more sectors will find it easier to raise capital.
Founders will have more opportunities to exit. While many will seize the moment to take maximum liquidity, a subset of founders will opt for a minority stake sale and defer the majority of their gains for a later transaction.
PE managers will increase distributions to LPs. With continued improvement in valuations, PE managers will have more opportunities to exit and distribute to LPs, giving these fund investors the opportunity to recycle capital back to those same managers. This will also make it easier for smaller or newer funds to raise capital.

To discuss equity capital conditions moving into 2026, provide an update on your business, or learn about Capstone’s wide range of advisory services and equity capital markets knowledge, please contact us.

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