PE KeyTrends – Down Rounds are Not a Blip in Venture Capital


– Down Rounds are Not a Blip in VC
– LP Consolidation Gains Momentum
– Watch for Record Volume in ‘Tail-End’ Secondaries
– European Buyout Volume is Down, for the Moment
– Latin America PE Market Looks Set for Deals
– PE KeyTrends Quick Question Results

Down Rounds are Not a Blip in VC, says highly regarded manager First Round Capital in an investor letter that it has, exceptionally, made public. First Round warns that many entrepreneurs and venture capital firms are oblivious of this. “There is an entire generation of founders (and funders) who have only experienced one kind of market – the boom-time market of the last eight years…. Some even believe that the venture capitalists who are blogging and tweeting about the market downturn are doing so in a deliberate attempt” to lower valuations – despite the negative impact this would have on existing portfolios. “Evolving from a unicorn to a cockroach” will be “extremely painful” for some entrepreneurs, but First Round doesn’t expect to see “massive change” in its own investing. “We have tried to remain disciplined (in an undisciplined market), focused on the two numbers that matter: entry price and exit price.” The partners expect carnage but note they believe “great companies emerge during both boom times and bust times.”


A LANDMARK EFFORT TO POOL INVESTOR ASSETS GAINS MOMENTUM. Private Equity International reports that “the Lancashire County Pension Fund and the London Pensions Fund Authority, which have already agreed to combine their £11 billion in assets, are talking with other schemes to achieve critical mass.” Talks with three other U.K. public pension schemes with £35 billion in combined assets – the Greater Manchester Pension Fund, Merseyside Pension Fund and the West Yorkshire Pension Fund – are expected to reach a “successful conclusion,” according to an LPFA statement. Early discussions regarding asset consolidation have also begun with the Royal County of Berkshire Pension Fund. Britain’s government has instructed 90 local government pension schemes to combine assets, so more talks are likely. Investor consolidation is seen as particularly relevant in private equity, where large limited partners increasingly have an edge over smaller investors in everything from access to the best managers to overall resources and direct investing.


THIS COULD BE A GREAT YEAR FOR ‘TAIL-END’ SECONDARIES.Private Equity International notes that there is “around $964 billion of unrealized value” in PE funds that are “nine years or older.” The unprecedented value held in vehicles that are approaching or which have surpassed the standard 10-year life cycle of private equity funds is likely to feed record 2016 sales of such funds – known as ‘tail-ends’ – in the secondary market. A 2005 to 2008 fundraising boom and longer hold periods for companies bought in the frothy markets preceding the great recession explain the exceptional value held in these vehicles. Investors holding tail-ends are often eager to sell and reinvest in more promising primary fundraisings. Meanwhile, buyers typically can pick up bigger discounts to net asset value for long-in-the-tooth funds than they can for younger funds.


“The prospect of a Brexit – a UK exit from the European Union – and wider market uncertainty are causing private equity firms to hold off doing deals in Europe, with the first quarter of 2016 on course for a sharp fall,” reports LBO Wire. Year-to-date through March 10, Europe recorded 181 private equity-backed deals – both purchases and sales – worth $20.1 billion. That represents a 44 percent fall in deal number and a 28 percent drop in value versus the same period last year. But once Britain’s June 23rd referendum on EU membership is over, deal volume may well pick up. According to Palico data, European-focused private equity funds raised $20 billion year-to-date through February 15, 43 percent more than in the same period in 2015. Over two-thirds of investors polled by Palico equate the euro’s fall in recent months with highly attractive European investments


LATIN AMERICA’S RESILIENT PE MARKET LOOKS SET FOR DEALS. “Latin American fundraising and exits were both down last year from a historically strong 2014, though they were roughly in line with previous years,” LBO Wire observes, citing a report from the Latin American Private Equity and Venture Capital Association. At the same time, PE investment in the region held fairly steady, “partly because of more openness by some governments.” Some 52 Latin American-focused PE and venture capital funds raised $7.2 billion in 2015, after record commitments of $10.4 billion in 2014. “The minor slump in Latin American PE comes amid a regional economic contraction.” Meanwhile, Bloomberg reports that as a “new wave of corporate restructuring drives mergers & acquisitions in Latin America,” “PE funds are turn[ing] to credit,” and it’s not just for higher yields. Extending debt or buying credit helps PE get a foot in the door at distressed companies that managers eventually hope to takeover.



  • 69 percent of respondents say that any slowdown in exits in 2016 will be fully compensated by more attractive investment opportunities.
  • 66 percent of respondents expect distributions to decline significantly this year.
  • 62 percent of responding LPs expect to invest less this year in buyout funds than in other PE strategies.

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