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Growth Equity Capital Volumes and Deal Value Rebound

Growth capital volumes are set to rebound from 2023 levels. In Q1 2024, growth equity investments into late-stage private companies totaled $44 billion, the highest mark over the past six quarters. At this pace, 2024 annual growth equity investments are set to reach $177 billion, outpacing 2023 annual levels which totaled $155 billion. In Q1 2024, there were six transactions valued at $1 billion or higher, including a $6.4 billion investment in Vantage Data Centers from DigitalBridge Group (NYSE:DBRG) and Silver Lake (January); Anthropic’s $4 billion raise from a syndicate of investors which included Amazon (Nasdaq:AMZN) (March); and Equinox Fitness’ $1.9 billion raise led by Sixth Street (March).

Valuations Continue to Normalize

Valuations have begun to rebound after market reset following record levels in 2021. A rebound in public equity markets over the last year, coupled with high levels of dry powder among U.S. private equity firms (estimated $993.4 billion as of 2023, according to PitchBook), have supported stronger valuations for growth companies in Q1 2024. Although, underlying concerns for the U.S. macroeconomic picture remain as the Fed considers a higher-for-longer interest rate environment. Median pre-money valuations through Q1 2024 settled between 2022 and 2023 levels at $200 million. When looking at pre-money valuations by quarter, Q1 2024 saw a slight step-up from Q4 2023 as median valuations increased from $193 million to $200 million.

Business Owners Consider Alternative Liquidity Strategies

North American merger and acquisition (M&A) volume for deals with $25 million or more in enterprise value decreased by 17% year-over-year (YOY) while deal value decreased more than 24% YOY, according to PitchBook. Deal makers continued to turn toward smaller deals in the face of higher financing costs, reduced lending, and lingering valuation disconnect. Because of this, many founders have considered postponing a full sale until M&A valuations stabilize. One solution for founders has been to sell a minority stake today to pave the way for a full sale in the future. Founders doing so could: 1) use some portion of the raise for secondary liquidity, and 2) provide growth capital to accelerate their business plan as they grow EBITDA.

Fund Counts Drop Dramatically, but Fundraising Levels Persist

Fundraising volumes are set to outpace 2022 highs, while fund count remains low. The environment for new growth and private equity funds has been limited to larger general partners who have a differentiated thesis and track record. In Q1 2024, $140 billion in growth and private equity was raised across 76 funds, according to PitchBook. At this pace, fundraising in 2024 is set to reach a record high of $560 billion by year end.

Growth Equity Capital Deployment Proves Resilient

Compared to recent years, U.S. private equity growth funds have made up a smaller share of 2024 sponsor fundraising. In Q1 2024, 14% of private equity capital raised was for growth strategies, down from 16% in 2023 and 2022, and 19% in 2021. While growth fund capital formation has decreased, growth capital deployment has continued its resilience YOY. Growth deals accounted for 13% of all private equity deals in Q1 2024 by value. This is well above its historical 10-year average of 10%. On a deal count basis, growth equity accounted for one out of every five private equity deals in Q1 2024.

In summary, the equity capital markets, particularly for private companies, remain constructive and a viable alternative for high-quality companies seeking to raise capital. Minority stake investors remain proactive in capital deployment and can be a compelling option for business owners/operators seeking capital to fund growth, refinance debt, or recapitalize existing owners.

To discuss our Equity Capital Markets Update in more depth or learn more about raising equity capital to fund growth initiatives, recapitalize the balance sheet, or finance M&A transactions, please contact us.


This Equity Capital Markets Update contains excerpts from our most recent Capital Markets Update. For more on middle market M&A trends, deal volumes, and valuations, access the full piece here.

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