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Growth Equity Capital Volumes Defied 2023 Headwinds

Growth capital volumes lagged the bull market years of 2020-2022, but private markets tracked 2019 levels. Despite the turbulence in M&A in 2023, growth equity investments into late-stage private companies tracked with levels seen in 2019, as growth investments through Q4 totaled $159 billion—96% of 2019’s full-year total. Furthermore, while deal activity in 2023 trailed annual levels seen in recent years (with an average of $304 billion annually from 2020-2022), there were 1,419 closed transactions in 2023. In Q4 there were six transactions valued at $1 billion or higher, including NFP’s $2.3 billion investment from HPS Investment Partners and Stone Point Capital, Anthropic’s $2 billion raise from Alphabet (Nasdaq:GOOGL), and Metropolis’s $1.7 billion raise led by Eldridge Industries and 3L Capital.

Valuations Continue to Normalize

Valuations continue to come under pressure as the market resets from 2021 levels. Lingering, but improving, concerns surrounding the U.S. macroeconomic picture and uncertainty in the medium-term interest rate environment continue to moderate valuations for growth-stage companies. However, valuations have followed similar trends as the deal value figures discussed previously. While moderating from the bull market years, valuations have largely tracked pre-pandemic levels. Through Q4 2023, median pre-money valuations have been consistent with those in 2019 and 2020 at $175 million. Furthermore, when looking at median pre-money valuations by quarter, Q4 2023 saw a slight step-down from Q3 2023 as median valuations decreased from $200 million to $193 million.

Business Owners Consider Alternative Liquidity Strategies

North American M&A deal count across all enterprise value ranges above $25 million decreased by 22% YOY while deal value decreased more than 30% 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

Total fundraising volumes remained consistent with the prior year while fund count fell dramatically. Following record levels of fundraising in 2022, the environment for new growth and private equity funds has been limited to larger general partners (GPs) who have a differentiated investment thesis and track record. In 2023, $447 billion in growth and private equity was raised across 440 funds. This marks a 5% decrease in dollar amount and a 52% fall in fund count YOY, according to PitchBook.

Growth Equity Capital Deployment Proves Resilient

Compared to recent years, U.S. Private Equity growth funds have made up a smaller share of 2023 sponsor fundraising. In 2023, 19% of private equity capital raised was for growth strategies, down from 24% in 2022 and 28% 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 2023 by value. This represents a new quarterly high and well above its historical 10-year average of 9%. On a deal count basis, growth equity accounted for one out of every five private equity deals in 2023.

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 out 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 Q4 2023 Capital Markets Update. For more on middle market M&A trends, deal volumes, and valuations, access the full piece here.

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