Evolution of Liquidity - Shifting exit strategies for private market investors

Private equity and, to an extent, venture capital can be seen as relatively stagnant industries, utilizing core investing strategies that haven’t changed much in decades. But these industries have actually evolved dramatically over the last few years, not just from the perspective of overall market trends but from that of investors. Of course, by “investors” we’re referring not only to the general partners (GPs) that make the deals but also to the limited partners (LPs) that fund the GPs, and even the employees who invest years of their life to help grow companies.
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THE EVOLUTION OF 
LIQUIDITY 
Shifting exit strategies for 
private market investors 
Page 14
2Q 2018
Private vs. public market investors: 
Who's reaping the gains from the rise  
of unicorns? Page 4 
 
New horizons for PE Page 52  
 
A SPOT of secondary activity Page 56
1
PitchBook Private Market PlayBook 2Q 2018
2
PitchBook Private Market PlayBook 2Q 2018
Perspectives
Private vs. public market investors: Who's reaping the gains  
4 
from the rise of unicorns?
Billionaires, buyouts and basketball: The Gores brothers  
8 
take on private equity 
Barbarians left behind: How predictive analytics are 
12 
upgrading PE's playbook
A letter from the Editor 
2
Contents
4
2
14
24
46
The Feature
The evolution of liquidity: Shifting exit strategies 
14 
for private market investors
As market dynamics change, investors within private equity  
and venture capital are finding new and diverse ways  
to exit their investments
Market Trends
US Venture Capital 
26
US Private Equity 
30
European Venture Capital 
34
European Private Equity 
38
Global M&A 
42
Analyst Insights
Sources of impact capital 
46 
New horizons for PE 
52
A SPOT of secondary activity 
56
Additive dealmaking 
58
Twin Brook Q&A: Hot middle market lending environment  
20 
comes with competition and new challenges
20
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2
PitchBook Private Market PlayBook 2Q 2018
Predictable outcomes through changing market cycles.  
And a certainty of execution that our clients have come to 
expect from a market leader. Through 20+ years of innovative 
financing, our consistency is what makes us different.
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George Gaprindashvili 
Editorial Director
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PitchBook Data, Inc.
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Vice President, Market 
 
Development & Analysis
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Private Market PlayBook
A letter from  
the Editor
Private equity and, to an extent, venture capital can be seen as relatively 
stagnant industries, utilizing core investing strategies that haven’t changed 
much in decades. But these industries have actually evolved dramatically 
over the last few years, not just from the perspective of overall market 
trends but from that of investors. Of course, by “investors” we’re referring 
not only to the general partners (GPs) that make the deals but also to the 
limited partners (LPs) that fund the GPs, and even the employees who 
invest years of their life to help grow companies.
Considering PE and VC are highly illiquid asset classes, one of the biggest 
challenges for fund managers is executing the right strategy to achieve 
an exit and return capital to themselves and their investors, the LPs. And 
for LPs, the biggest concern is getting a return on their investment in 
a reasonable amount of time. The path to liquidity has shifted rather 
significantly recently. Massive capital availability in the private markets has 
contributed to lengthening company lifecycles and investment hold times, 
and sky-high valuations and deal multiples have driven exit volume down, 
to name a couple factors. Investors have weathered these market shifts 
and have found new and diverse ways to achieve liquidity.
As companies stay private for longer, activity has grown in direct 
secondary markets, which has fostered enhanced liquidity for investors 
and employees in ways we haven’t seen before. This has also enabled 
enhanced price discovery, which in turn has fueled innovation in listing 
mechanisms, such as Spotify’s recent direct public listing. LP secondaries 
have proliferated and GPs are buying these stakes at an unprecedented 
clip, no longer seeing these transactions as a red flag. Moreover, there’s 
been a considerable rise in GP stake deals, which provide liquidity to GPs 
by selling minority positions in their underlying management companies.
The feature article in this issue of our magazine outlines the approach and 
drivers of some of these shifting strategies, highlighting the evolution of 
liquidity through the LP, GP and transactional perspectives. This issue’s 
liquidity theme also comes through in the Perspectives section, where we 
compare the value creation of public and private unicorns to see who’s 
reaping the gains from their rise. Finally, in the Analyst Insights section we 
dive deeper into Spotify’s innovative listing and its potential implications.
Cover illustration: Alessandro Gottardo
5
PitchBook Private Market PlayBook 2Q 2018
4
PitchBook Private Market PlayBook 2Q 2018
Perspectives
Private vs. public market investors: 
Who's reaping the gains from the rise 
of unicorns?
By Adley Bowden, Andy White
729.3
337.8
303.8
102.3
73.9
71.6
18.7
17.3
14.8
10.4
0
100
200
300
400
500
600
700
800
Facebook (FB)
Workday (WDAY)
Wayfair (W)
Twitter (TWTR)
FireEye (FEYE)
Zynga (ZNGA)
Groupon (GRPN)
GoPro (GPRO)
LendingClub (LC)
Leaf Group (LFGR)
Average monthly market cap index by time public
Source: PitchBook 
*As of May 9, 2018
A slow drama is currently playing 
out that’s radically altering the 
financial market landscape: the 
number of publicly listed companies 
in the US is steadily shrinking.
This trend has raised alarm bells 
across Wall Street and attracted 
attention from policymakers and 
capitalists alike. From our vantage 
point as a data and information 
provider on the private markets, 
we believe this is evidence of an 
ongoing transition into a new 
capital markets paradigm that 
includes a significantly more robust 
institutional private market.
To better understand this change 
we decided to look at a prominent 
collision point of this paradigm 
transition—IPOs and unicorns, 
which are defined as privately 
venture-funded companies with 
valuations of $1 billion or more. That 
unicorns exist, let alone flourish with 
240 globally when this story went 
to print, is just one of the facts we 
submit in support of this shift. We’ll 
save the full manifesto on the new 
paradigm for a future edition of 
this magazine and, until then, share 
what we found as we pored over 
our data on unicorns and IPOs. 
Not your 1990s’ IPOs
For ease and consistency of 
analysis, we focused on US-
headquartered, venture-backed 
technology companies, and what 
we found confirmed some of our 
hypotheses, overturned others and 
opened our eyes to new ideas. 
One trend that has been inarguable 
is venture-backed companies 
staying private for much longer 
than ever before. Since 2010, 
companies have been going 
public more than nine years after 
founding, compared to around 
five years in the mid to late ‘90s. 
That increase has meant these 
companies have gone public at 
a very different stage in their 
lifecycles—they’re much larger, 
they’re more sophisticated, they 
have a larger investor base and 
they're often global in reach. It 
also means that there are fewer of 
them, as it’s a lot harder to stay in 
business and/or independent for 
nine years versus five.
There are several drivers behind the 
trend of staying private longer, and 
a few commonly cited causes are 
the increased cap on investors from 
the JOBS Act (from 500 to 2,000), 
new deep-pocketed entrants into the 
venture market (e.g., SoftBank Vision 
Fund, PE firms, mutual funds) willing 
to fund nine-figure investments 
into these companies, and SOX 
compliance expenses. Another 
interesting theory put forth by Dr. 
Jay Ritter (aka “Mr. IPO” from the 
University of Florida’s department of 
finance) is that private companies are 
moving so fast that a better route for 
them to reach their potential is to be 
acquired by an incumbent with scale, 
as opposed to building it themselves. 
We also believe many founders are 
intrigued by the relative freedom 
of the private markets, versus the 
scrutiny—and quarterly targets—
demanded by public markets. As 
long as these factors stay in place, we 
don’t foresee the current IPO timeline 
changing.
Which investors see the value?
Some of the world’s most highly 
valued public tech companies 
entered the public markets with 
quite modest valuations, at least 
by today’s standards. Microsoft, 
Amazon, Oracle and Cisco all 
debuted with market caps south of 
$1 billion. Of those, only Microsoft 
topped $500 million. This translated 
to relatively modest gains for their 
private market investors, compared 
to the massive value appreciation 
they have all experienced post-IPO. 
By comparison, the current crop of 
unicorns is creating massive gains 
for their private market investors.
When we first started compiling 
data for this article, we had a 
hypothesis that delayed IPOs meant 
a greater portion of the financial 
value that unicorns generate was 
being captured by private market 
investors instead of their public 
market counterparts. That turns 
out to be mostly the case but isn’t 
exactly the full truth. The reason 
being that the power law dynamic 
of venture investing economics 
carries through into the public 
markets post-IPO. 
For this analysis, we started with 10 
tech unicorns in the US that went 
public between 2009 and 2014 
(for at least three years of trading 
data). We based their market caps 
at IPO to 100 and then charted 
their average monthly market 
caps up to May 9, 2018. We were 
surprised to see that only four of 
the 10 are currently valued above 
what they were at their debut. This 
means that, to date, six companies 
reached their peak valuations within 
the private markets and have only 
declined in value for any public 
market IPO investor.
If you had taken $1,000 and 
invested $100 into each of these 
companies at its IPO, you would 
have $1,679.88 today. Not a 
terrible return, but not great. The 
interesting reality is that 58% of that 
gain comes from just Facebook. 
Then 22% from Workday, 18% from 
Wayfair and 0.2% from Twitter. 
If you had instead invested that 
7
PitchBook Private Market PlayBook 2Q 2018
6
PitchBook Private Market PlayBook 2Q 2018
Private valuation appreciation by year
$31M
$43M
$71M
$153M
$169M
$172M
$201M
$375M
$378M
$456M
$471M
$492M
$500M
$551M
$560M
$585M
$597M
$695M
$707M
$761M
$839M
$893M
$1.0B
$1.1B
$1.3B
$1.3B
$1.3B
$1.4B
$1.4B
$1.6B
$1.6B
$1.9B
$2.7B
$2.8B
$3.4B
$3.6B
$3.9B
$7.8B
$9.8B
Oracle
Cisco Systems
Microsoft
Amazon.com
Box
Etsy
Tanium
GreenSky
Apple
Houzz
Charter Communications
Akamai Technologies
Outcome Health
Red Hat
Machine Zone
Slack Technologies
Wish
Instacart
SoFi
Dropbox
Moderna Therapeutics
Magic Leap
Lyft
VMware
Pinterest
Samumed
Stripe
Zenefits
Zynga
SpaceX
Palantir Technologies
Twitter
Snap
WeWork
Groupon
Airbnb
Alphabet
Uber
Facebook
Currently private
Currently public
Source: PitchBook 
*As of May 9, 2018
-$5.2B
-$1.5B
-$587M
$543M
$544M
$650M
$1.4B
$2.1B
$3.4B
$4.1B
$5.8B
$7.8B
$23.0B
$24.3B
$25.6B
$37.0B
$51.8B
$72.4B
Snap
Groupon
Zynga
Box
Akamai Technologies
Etsy
Red Hat
Twitter
Charter Communications
VMware
Oracle
Cisco Systems
Microsoft
Apple
Dropbox
Amazon.com
Alphabet
Facebook
Market cap appreciation by year
Source: PitchBook 
*As of May 9, 2018
$1,000 in just Facebook, it would 
be worth $7,292 today. A sample 
size of 10 isn’t exactly exhaustive 
enough to draw solid conclusions 
from, but it certainly raises some 
questions about unicorn IPOs and 
to whom the gains accrue.
How today’s unicorns stack up
To get a better sense of private 
market value creation, we took 
a group of private tech unicorns 
in the US and divided their most 
recent private valuation by the 
number of years from founding to 
latest financing. This shows us how 
much value is being created per 
year private, while accounting for 
companies that have been private 
longer, and thus have had more 
time to accrue value.
We also selected a group of public 
tech companies and used their 
market caps on the day of IPO, 
then dividing that by the time from 
founding to IPO. Here are the results:
Uber is the only current unicorn 
that comes close to Facebook’s 
rate of value gain as a private 
company, possibly boding well for 
the ridehailing company’s planned 
listing next year (or beyond).
The remainder of the group shows 
an interesting trend: the companies 
having accrued private value 
the quickest tend to be younger 
companies, while the legacy tech 
titans accrued relatively little value 
while private. Amazon, Microsoft, 
Cisco and Oracle are barely visible 
at the bottom of the chart, yet all 
currently have market caps over 
$150 billion. As a comparison, the 
billions of dollars in value accruing 
these days to private investors is 
staggering. So, clearly the private 
market investors are profiting 
significantly more than public 
investors, right?
Wrong, kind of. Again, a mixed 
picture emerges where the top 
companies only accelerate in 
the public markets, accruing 
significantly more value to the 
public markets than the private 
ones. However, there is a larger 
number of companies that see 
marginal or even value destruction 
while in the public markets. 
Clearly, Facebook is in a league 
of its own, but we also see the 
true explosion in value that the 
legacy tech titans have enjoyed 
since being public, dwarfing even 
Facebook’s value gains while 
private. We also see that some 
of the more recent entrants into 
the public arena have not fared 
so well. To be sure, it’s still far too 
early to make a definitive judgment 
on many of these businesses, but 
it does beg the question: Have 
some companies exhausted their 
potential value growth in the 
private markets?
Our original hypothesis was that 
the changing paradigm between 
the public and private markets 
means that private market investors 
are capturing a significantly 
larger chunk of venture-backed 
companies value creation than in 
the past, and potentially even more 
than public market investors. It 
turns out, like most things in life, it’s 
complicated. For many companies, 
that looks to be the case—causing 
us to be suspect of the ultimate 
performance of many of today’s 
unicorns, should they go public.
There are a select handful of 
unicorns, however, that will emerge 
from the private markets with 
the scale and momentum to only 
accelerate their growth post-IPO 
and bring with it majestic returns 
to their public market investors, as 
well.
9
PitchBook Private Market PlayBook 2Q 2018
8
PitchBook Private Market PlayBook 2Q 2018
Billionaires, buyouts and basketball:    
The Gores brothers take on  
private equity
By Kevin Dowd
Who’s the most interesting person 
in private equity? That’s open 
to debate. Who are the most 
interesting brothers? To that 
question, we have an answer.
Alec and Tom Gores are both the 
founders of their own firms: Alec 
leads The Gores Group, while Tom 
is the CEO of Platinum Equity. The 
pair are also the owners of two of 
the largest homes in Los Angeles: 
Alec has an 11-bedroom mansion on 
2.2 acres in Beverly Hills, while Tom 
bought a palatial estate in Holmby 
Hills in 2016 as part of a reported 
$100 million deal. 
In his spare time, Tom’s activity of 
choice is basketball. He’s been the 
owner of the NBA’s Detroit Pistons 
for the past seven years and has 
become a major presence within 
the franchise, often sitting courtside 
at its shiny new arena in downtown 
Detroit. Alec, meanwhile, is said to 
prefer a different game. In 2012, 
The Daily Beast reported he lost 
$17.4 million to an Irish gambler in a 
“serious backgammon match” that 
spanned three days.
With a net worth of $2.1 billion, per 
the latest Forbes estimate, he can 
afford it. Forbes assigns Tom a net 
worth of $3.9 billion, giving the 
brothers a combined value of an 
even $6 billion.
And did we mention the wire-
tapping? A dozen years ago, Alec 
and Tom were at the center of a 
federal investigation of a private 
investigator in Hollywood, when 
reports emerged that Alec had 
hired the PI in 2000 to determine 
whether his wife at the time was 
having an affair with Tom. The 
detective had proceeded to install 
listening devices on the pair’s 
phones, and Alec’s suspicions were 
reportedly confirmed.
Neither Gores Group nor Platinum 
responded to interview requests, 
and neither brother is known for 
being an open book with the media 
when it comes to their private 
equity activities. But the Alec and 
Tom still manage to make their 
share of headlines. And lately, so 
have their firms. 
*   *   *
The Goreses were born in Israel—
Alec in 1953 and Tom in 1964—
and moved as kids to Michigan. 
(A middle brother, Sam, is the 
chairman of Paradigm Talent 
Agency. The Gores genes aren’t 
effective only in private equity.) 
Growing up in the Rust Belt was 
a far cry from the brothers’ future 
positions in Hollywood’s upper 
crust. And it wasn’t long before 
they began showing a desire to 
transcend their humble beginnings. 
Alec founded his first company in 
1978, dealing computers out of their 
parents’ basement, and sold the 
business eight years later for some 
$2 million. A career had begun. The 
next year, in 1987, he founded The 
Gores Group, making the move 
from selling products to selling 
companies. 
His younger brother followed suit 
eight years later, launching Platinum 
Equity in 1995. These days, Platinum 
is the larger firm—it boasts $13 
billion in AUM compared to about 
$2 billion for Gores Group—and 
generally pursues larger deals. 
But both firms are operationally 
focused, seeking out investments 
that allow in-house teams to use 
their expertise to create value. 
Tom Gores and Platinum completed 
20 new investments last year, their 
most since at least 2006, according 
to PitchBook data. The firm 
continued its buyout spree during 
the early months of 2018, executing 
11 transactions during 1Q alone. 
That ranked in the global top 20 for 
activity during 1Q and put Platinum 
on pace to more than double last 
year’s firm record. The biggest price 
tag from those 2018 deals was the 
takeover of Husky Injection Molding 
Systems from Berkshire Partners 
and OMERS Private Equity in an 
SBO worth $3.85 billion. 
To finance that increase in activity, 
Platinum is ascending to new 
fundraising heights. The firm 
closed its fourth flagship fund on 
a $6.5 billion hard cap last March, 
representing a 73% step-up in size 
from its $3.75 billion predecessor, 
a rare increase for a firm that’s 
already raising billions. 
Things have been a bit slower on the 
investment front at Gores Group. 
Alec’s shop completed six new deals 
last year, per PitchBook data, down 
from a recent high of 14 in 2014. 
But the firm has been active in 
other ways. Reports emerged in 
February that Gores Group planned 
to forgo raising a new fund, opting 
instead to gather cash and invest 
on a deal-by-deal basis. Not long 
before that, the firm was involved 
in an unconventional deal that 
departed from the normal paradigm 
of private equity—and that played 
a role in the revitalization of one of 
America’s most iconic brands. 
*   *   *
In 2012, Hostess Brands was on 
its death bed. Weighed down by 
debt from a buyout gone bad, the 
company shut down its operations 
entirely and auctioned off its assets. 
The next year, though, an investor 
group bought several of the 
company’s major brands—including 
Twinkies and Ding Dongs—for a 
reported $410 million. And three 
years after that, Gores Group lent 
a hand for the next stage of the 
rebirth. 
Founder
Founded
HQ
Other offices
2017 investments*
1Q 2018 investments*
2017 exits*
Alec Gores
1987
Los Angeles
Boulder, CO
6
0
3
Tom Gores
1995
Los Angeles
Boston, Greenwich, CT, 
New York, 
 London, Singapore 
20
11
3
*Source: PitchBook
11
PitchBook Private Market PlayBook 2Q 2018
10
PitchBook Private Market PlayBook 2Q 2018
In November 2016, a special purpose 
acquisition company sponsored by 
Gores Group acquired Hostess and 
took the company public through 
a reverse merger. Coming with a 
reported valuation of $2.3 billion, the 
move allowed Hostess to reap the 
benefits of being a public company 
without having to navigate a tough 
market for IPOs. And in the months 
since, Hostess’ stock price has 
trended generally up. Gores Group, in 
any event, seemed pleased with the 
deal: In January 2017, the company 
took a second blank-check company 
public in the hope of pursuing a 
similar deal in the future.
Other instances of Gores Group’s 
recent activity involve some 
brotherly love. Back in 2002, a 
feature in The Wall Street Journal 
on Alec and Tom Gores highlighted 
that the two brothers were at the 
time bidding for the same business, 
telecom company Global Crossing. 
In the years since, though, their 
firms have become less inclined to 
compete with one another—and 
more interested in teaming up. 
In September 2010, Platinum and 
Gores Group acquired Alliance 
Entertainment, a wholesale 
distributor of music, movies and 
other media that worked with 
retail giants like Barnes & Noble 
and Amazon. The firms exited 
the business three years later to 
fellow wholesaler Super D after 
conducting a pair of add-ons. 
Tom and Alec next partnered on 
a deal in June 2016, when they 
recapitalized Data Blue, a supplier 
of various IT services for enterprise 
clients in North America. Once 
again they pursued inorganic 
growth, as Data Blue added on 
cloud specialists LPS Integration 
and Williams & Garcia last year. 
*   *   *
Despite all those buyouts for 
companies in the IT, media and 
plastics industries, it’s possible that 
Tom Gores and Platinum’s best 
investment this decade involves 
sneakers and hoops. In 2011, Tom 
paid a reported $325 million to take 
a 51% stake in the Detroit Pistons 
franchise, with Platinum’s second 
flagship fund buying the other 49%. 
Four years later, Gores bought out 
the stake owned by his firm to take 
100% ownership. 
At the time of the original 2011 
purchase, an industry source 
described it as a “shocking” bargain 
to business publication Crain’s. 
Several years later, it only looks 
better: Forbes’ latest estimate pegs 
the Pistons’ enterprise value at $1.1 
billion.
And there are other, indirect 
benefits. Like the fact that the 
Platinum Equity logo now occupies 
a prominent place on the Pistons’ 
home floor, the firm name written in 
script on either side of midcourt—
the kind of prime brand-building 
real estate most private equity firms 
could only dream about. 
It’s the sort of thing that would 
make an older brother proud. Even, 
perhaps, if that older brother is also 
a part-time rival. 
Year closed
Size
Predecessor size
Step-up%
Thoma Bravo Fund X1
2014
$3.65B
$1.25B
287%
Vista Equity Partners Fund IV
2012
$3.5B
$1.3B
269%
BDT Capital Partners II 
2016
$6.2B
$3B
207%
Clearlake Capital Partners II
2018
$3.6B
$1.4B
157% 
Marlin Equity Partners IV
2013
$1.6B
$600M
146%
Genstar Capital Partners VII
2017
$4B
$2.1B
90%
Clayton, Dubilier & Rice Fund X
2017
$10B
$6.4B
56%
Source: PitchBook
Platinum's got company: Other notable recent US buyout fund step-ups
60
PitchBook Private Market PlayBook 2Q 2018
Copyright © 2018 Deloitte Development LLC. All rights reserved.
Awaken your portfolio
Acceptable performance can make it seem like potential is being achieved. But look again. 
Small adjustments in effi  ciency, leadership development, or how capital is used can provide 
a jolt. With services from audit to consulting, Deloitte can advise private equity investors on 
such issues across their portfolios, and help open their eyes to what true potential might be.
See our services for private equity investors and portfolio companies 
at deloitte.com/us/privateequity.

12
PitchBook Private Market PlayBook 2Q 2018
Barbarians left behind: 
How predictive analytics 
are upgrading PE's 
playbook
By Alex Lykken
Imagine you’re a private equity 
investor. You focus on the US 
middle market, with a specialty in 
food-related sectors.
Your investment team finds a 
possible target, a trendy ice-cream 
maker based in California. A big 
hit with millennials, the brand 
has a cult-like following in San 
Francisco and Los Angeles. The 
company has already tried to 
expand, with varying results at 
new retail locations. Restaurant 
and grocery store sales, however, 
were up double digits the past 
three quarters but disguised by low 
in-store revenues. It turned out that 
demographics helped explained the 
discrepancy; younger customers 
were behind stagnating in-store 
sales while older customers were 
fueling grocery sales. To optimize 
overall growth, the company 
needed to account for both 
trends, and reallocate its resources 
accordingly.
Armed with this insight into 
consumer behavior, your firm can 
bid competitively even as others 
question your team’s valuation. 
What does this have to do with 
technology? Not much on the 
surface—tech poses no immediate 
threat to the ice cream industry. 
But technology is playing an 
increasingly important role when it 
comes to evaluating a company’s 
growth potential, and it is quickly 
changing the nature of private 
equity due diligence. 
This is particularly true as it pertains 
to the use of predictive analytics, 
which, in PE context, commonly 
boils down to analyzing how 
specific clients or users interact 
with a target company’s products 
or services.
Combining high doses of leverage 
with cost-cuts is no longer a 
reliable playbook, and focusing 
on efficiency measures in a sector 
like retail, for example, can be like 
catching a falling knife.
That’s where harnessing data and 
technology comes in. 
“Where we’ve seen a lot of 
improvement with private equity-
backed companies comes back 
to reporting capabilities,” says 
Chris Stafford, senior manager in 
West Monroe Partners’ Mergers & 
Acquisitions practice. 
Private equity owners are expecting 
to see value coming from those 
efforts quickly, he added, in as little 
as six months. More broadly, PE 
increasingly emphasizes knowledge 
sharing among portfolio company 
leaders with regard to technology 
capabilities. 
“We’ve seen private equity mature 
on the operating side,” Stafford 
said. “CIOs are becoming more 
aware of what their portfolios 
need within a certain market. 
Investors and advisors are hosting 
more conferences where they can 
share those ideas. And beyond 
knowledge sharing, we’re seeing 
more centralized services being 
developed within PE firms. In 
addition, investors and CIOs 
are hiring specialists to run 
portfolio diagnostics and provide 
recommendations to their CTOs to 
identify any gaps or opportunities 
to drive revenue growth.”
In some cases, leveraging 
technology has allowed PE 
sponsors to better identify add-on 
targets earlier in the process, and 
many add-ons today are being 
negotiated ahead of the platform 
acquisition itself. 
In other cases, it’s more about 
getting answers to more insightful 
questions, like which customers 
buy more or more often, and which 
customers are less active? Which 
clients or client-types come with 
higher margins, and which are 
costlier to serve? Perhaps most 
important, how are company 
resources being allocated to those 
specific products, services or 
clients? 
This line of thinking isn’t quite 
the same as identifying a factory 
to close or a business line to 
shut down. Those were blunt 
instruments that worked effectively 
in the past, when those situations 
were more common. But PE 
has been active for almost 40 
years, and after such a long and 
profitable run, the emphasis on the 
turnaround play is losing ground to 
expansion efforts.
Opportunities today are less 
obvious in a crowded market and 
more likely to hinge on boosting 
specific revenues or margins by 
as little as 10%. That might not 
seem like much, but knowing that 
certain resources can be allocated 
differently can make the difference 
between bidding confidently for a 
target versus passing altogether. 
Even as buyout multiples won’t 
always be this high and auctions 
this competitive, predictive 
analytics are likely here to stay. 
That would be a good thing for 
an industry looking to upgrade its 
image while uncovering even more 
opportunities in the years ahead.
By Garrett James Black
14
PitchBook Private Market PlayBook 2Q 2018
15
PitchBook Private Market PlayBook 2Q 2018
The evolution  
of liquidity
Shifting exit strategies for 
private market investors
continued >
Liquidity is the lifeblood of financial markets. For players in private 
markets, it is perhaps even more so, and yet is much more complicated 
to achieve. Illiquidity is a hallmark of alternative investments. But it is not 
just the relative infrequency of liquidity for private funds that compli-
cates matters; rather, even the method of achieving liquidity can be 
difficult, as there have typically been only so many options for managers 
to exit holdings. As a result, predicting liquidity trends is complicated, 
especially considering the protracted lifecycles of private funds.
Over the past several years, however, a handful of key trends have 
emerged amid the general liquidity landscape that suggest private markets 
players of all types are opening their minds to new ways of realizing value 
from their investments.  
17
PitchBook Private Market PlayBook 2Q 2018
16
PitchBook Private Market PlayBook 2Q 2018
These key shifts represent clear 
signposts of how the current 
liquidity market is gradually 
evolving. Not all types of liquidity 
are equal; the incentives for and 
routes to liquidity differ for each 
type of investor. Therefore, taking 
a snapshot of the current state 
of liquidity evolution requires 
considering those signposts from 
three perspectives: the LP’s, the 
GP’s, and the company’s.
A quick primer 
In the wake of the financial crisis, 
it took fund managers some time, 
but eventually they embarked upon 
a period of massive distributions 
to their investors, finally realizing 
the largesse dispensed in the pre-
crisis buyout boom era—private 
equity funds alone distributed 
well over $300 billion per year 
between 2013 and 2016. The bull 
market in financial assets that got 
well underway in the early 2010s 
contributed to a spree of M&A 
as well as initial public offerings 
(IPOs). But every bull market 
spawns its own particular issues, 
and this latest was no different. PE 
funds sold off their most-valued 
assets to corporate acquirers 
hungry for acquisitive growth; 
venture investors took their hottest 
software platforms public; and both 
kept on investing from larger and 
larger funds, per their mandates, 
aided by their recent success. 
Assets became pricier. Competition 
stiffened. Liquidity became an even 
more important consideration, 
relatively speaking; a recent survey 
of LPs by 17Capital revealed 60% of 
LPs are dissatisfied with the pace of 
liquidity from 2007-2009 vintage 
funds, for example. 
Such a sentiment is highly 
reflective of the impact of cyclical 
factors, of which two categories 
primarily affect private markets: 
macroeconomic and structural, 
with secular also often playing a 
significant role. The macroeconomic 
is straightforward: Since 2016, 
there has been an oft-challenged 
narrative of global synchronous 
growth that, depending on which 
factors are considered, could be 
weakening or persisting. Recalling 
2007 and 2008, many investors 
are fearful of missing out on 
potentially unprecedented rallies in 
financial markets that could mark 
their assets even higher, as well as 
potential collapses if they hold on 
for too long. Although 2017 marked 
the fourth consecutive year of 
at least $2.9 trillion in M&A value 
across North America and Europe, 
volume has ceased to increase, 
either trending downward or at 
best persisting.
Enter the structural factors: Assets 
in the private market are inherently 
illiquid. The trick for investors 
concerned about liquidity is either 
creating or finding a market to clear 
their assets with the participation 
of all stakeholders. PE and VC 
managers have traditionally exited 
their holdings via three main routes: 
M&A or trade sales, IPOs and 
buyouts by financial sponsors. The 
key differing features of each to 
emphasize from the perspective of 
private markets investors are speed, 
scale and time. 
IPOs have trended downward in 
volume among both PE and VC 
firms, likely due to two secular 
factors: the gradual disappearance 
of small-cap companies on 
public indices as markets have 
inexorably marched upward and 
mega-companies have grown 
via consolidation; and better 
alternatives for additional funding 
or liquidity events in private 
markets in general. 
But to reiterate, not all liquidity 
events are equal. Different investors 
hold different perspectives, and 
each major category of player in 
the private markets has tinkered 
with their approach to liquidity. 
1. The limited partner perspective: 
Secondary markets as portfolio 
management
A stake in a fund is a claim to the 
fund’s assets. Liquidity of any 
stake is simply a matter of finding 
a market and settling the sale to 
the satisfaction of all stakeholders. 
Consequently, it is natural that 
stakes in PE and VC funds 
themselves would eventually enter 
their own marketplace and become 
bought or sold by LPs. Whatever the 
motivation, the global secondaries 
market is growing—the first three 
quarters of 2017 alone saw over $34 
billion raised in such strategies. More 
recently, New Enterprise Associates 
made headlines for its plan to sell 
roughly $1 billion worth of stakes 
in around 20 startups to a new 
vehicle, which would then manage 
those ongoing investments. That 
last attribute is a departure from the 
norm but only further emphasizes 
how such secondary vehicles 
and markets have become more 
common. Looking forward, such 
arrangements are likely to become 
more popular among a coterie of 
firms, as only certain large firms like 
NEA will possess both the means 
and the incentives. 
It is best to view this increased 
usage of secondaries from a 
portfolio management perspective.
For example, it’s difficult enough 
to craft a compelling investment 
thesis and find the right portfolio 
companies, so trying to align 
incentives by assembling exposure 
to certain GPs’ portfolios can be 
much more complicated. However, 
with the burgeoning popularity of 
the secondaries market, LPs now 
have an additional tool with which 
to manage exposure to certain 
funds, particularly within VC—
hence the NEA plan, which would 
provide liquidity for LPs clamoring 
for returns while offering stakes 
to those who desire exposure in 
more mature tech companies. It 
should be noted that different fund 
types currently trade at different 
discounts to NAV, with buyout 
vehicles trading flat and VC pools 
at a discount, down to 80 cents 
on the dollar in some cases. Such 
pricing is tied more to the relative 
risk profiles of funds, hence the 
disparity in discounts. Those 
ranges of discounts also evidence 
the maturation of the market; 
according to recent PitchBook 
research, secondary fund stakes 
typically sold at a 20% discount just 
a few years ago, when their sale 
was more stigmatized as a last-
ditch effort for distressed sellers. As 
the market has matured and new 
buyers have emerged, pricing has 
risen significantly.
This is perhaps the most 
momentous of the signposts of 
evolution. LP liquidity concerns 
have ebbed and flowed, as they 
always will, but rendering liquidity 
options more efficient by using 
secondary markets will not only aid 
in price discovery but also, again, 
overall portfolio management, from 
an LP’s perspective. That could 
make private funds even more 
alluring to LPs, helping mute typical 
concerns around illiquidity and 
access. In short, this trend retains 
some of the most substantial, 
potential implications for players in 
private markets on the whole.
2. The general partner/owner 
perspective: Hustle & cash flow
The GP perspective can be viewed 
as analogous to that of a company 
founder or owners of significant 
equity, in some ways. Through 
this lens, which emphasizes direct 
ownership, there are two primary 
trends of innovation: the sale of GP 
stakes in management companies 
and the maturation of secondary 
transactions, as well as secondary 
sales on private exchanges. 
While GPs are typically assessed 
through the funds they manage, 
there is also an underlying 
0
5
10
15
20
25
30
35
40
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Capital raised ($M)
Fund count
*
Global LP secondary fundraising
Source: PitchBook 
*As of October 10, 2017
19
PitchBook Private Market PlayBook 2Q 2018
18
PitchBook Private Market PlayBook 2Q 2018
management company that 
oversees the investment funds. In 
its simplest iteration, the sale of 
minority stakes generates cash to 
redeem shares in the management 
company held by founders, 
many of whom are at or nearing 
retirement age; such cash can be 
used in several additional ways, 
including launching new strategies 
and helping junior professionals 
fulfill their obligation to commit 
capital alongside LPs to funds they 
manage. 
This strategy remains fairly 
niche, with only the largest, 
most experienced firms typically 
embracing the formation of new 
GP stake-targeted vehicles, such 
as Goldman Sachs. But, however 
niche it may appear for now, it does 
represent yet another incarnation of 
liquidity options for direct owners 
of equity in firms themselves. And 
it is growing in popularity, with 
the roster of firms that sold stakes 
expanding to include TPG, Silver 
Lake, Vista Equity Partners and 
more. However, it’s not just owners 
of shares in funds that are desirous 
of additional liquidity options these 
days; direct equity owners in some 
of the most prominent private 
companies that have emerged in 
the past decade are increasingly in 
need of alternative liquidity options 
as well.
Exemplified most notoriously 
by the unicorn phenomenon, 
unprecedented capital inflows 
into mature companies that have 
elected to grow privately have led 
to early employees and investors 
alike requiring liquidity prior 
to later investors. Accordingly, 
private exchanges such as those 
operated by SharesPost or Nasdaq 
Private Market have evolved to 
accommodate those who wish to 
buy or sell exclusive interests to 
meet their individual needs. Growth 
has been significant, with Nasdaq 
Private Market reporting $3.2 billion 
in private secondary transactions in 
2017, a 3x increase from 2016.
Secondary sales can achieve 
a similar outcome while also 
qualifying as an additional 
fundraising round. Uber’s recent 
secondary sale is perhaps the best 
example of such a deal, with some 
early employees and investors 
being able to redeem part of their 
ownership as SoftBank plied Uber 
with additional capital. 
3. The transactional perspective: 
Secondhand news
Secondary buyouts, buyouts of VC 
portfolio companies
Secondary buyouts (SBOs) have 
become more popular recently, 
accounting for half of all PE-
backed exits in the US in 2017—the 
highest level we’ve seen. There 
are a variety of factors at play 
here. Record levels of dry powder 
(unspent capital) have left PE 
funds with massive sums of capital 
to deploy. Paired with favorable 
lending terms, financial sponsors 
have been able to bid more 
aggressively to win deals against 
strategic buyers. PE funds are also 
facing a particularly competitive 
dealmaking environment, where 
quality targets are fewer and 
deal multiples are sky-high. 
Pressured by LPs to invest their 
high levels of capital and facing 
difficulties in sourcing original, 
proprietary targets, sponsors 
have increasingly turned to SBOs. 
Sellers, on the other hand—who 
have traditionally preferred selling 
to strategic buyers—have been 
happy to offload their holdings at 
accommodative prices, especially 
at the prompting of aging inventory 
needing to be off the books, so to 
speak.
But these deals aren’t last-ditch 
efforts. Large funds often make a 
case for purchasing the portfolio 
companies of smaller firms 
simply because they can provide 
better scale than the current 
owners. On the other hand, 
large generalist firms may sell to 
smaller niche firms that have the 
sector-dedicated resources and 
growth strategies that can take 
the portfolio company to the next 
level. While these transactions 
can cause potential conflict for 
LPs who may be exposed to both 
the selling and buying fund, as 
long as buyers can continue to 
deploy effective value creation 
strategies and sellers can secure 
the prices and multiples they are 
content with, all parties can be 
satisfied.
It’s not just buyout GPs that 
can exit via a sale to a fellow 
financial sponsor, but also VC fund 
managers. Much has changed on 
this front as well recently. 2017 saw 
a record 20% of exits via buyout 
relative to all other major types of 
VC sales, nearly double the levels of 
the several years prior. This further 
illustrates how exit strategies are 
evolving. Much like PE firms turning 
increasingly to their competitors 
to sell, VC firms who have seen 
the IPO option narrow have found 
diverse exit routes as well. 
Alternative routes to public markets: 
Spotify & SPACs
Due to lengthening exit timelines, 
investors are finding more creative 
ways to achieve liquidity through 
the public markets. Spotify’s direct 
listing and the increasing popularity 
of special purpose acquisition 
companies (SPACs) represent 
prime examples of this evolution.
Rather than undergo a traditional 
IPO process, Spotify elected to 
simply list on public exchanges. 
Such a novel approach led to some 
head-scratching, as some feared 
excessive volatility in share price 
could occur without underwriting 
support or having a prebuilt book 
of demand. The twist is that such a 
change from typical price discovery 
processes and potential volatility 
was worth it to Spotify, as all it 
really sought was liquidity and 
adherence to its founders’ principles 
of transparency and equality. 
Mitigating swings in share prices 
by ramping up private secondary 
markets trading prior to the listing, 
Spotify enjoyed an ostensibly 
cheaper way of going public.
But such a novel form of price 
discovery and embrace of potential 
volatility is not necessarily to the 
liking of all, especially as Spotify 
had to put in a lot of time and work 
to pull it off, potentially offsetting 
IPO commission expenses with 
internal efforts. More critically, not 
every company enjoys Spotify’s 
status as the sole significant 
independent contender in the 
cutthroat music streaming world, 
as monoliths Amazon, Google 
and Apple loom in the offing. So 
while Spotify’s direct listing may 
not change the traditional IPO 
process dramatically right away, it 
does illustrate how other unicorns 
can find creative avenues to go 
public, with modifications to typical 
processes that can suit each to their 
preferences.
By design, SPACs are intended 
to purchase one company for 
one purpose—offer exposure 
to that particular business for 
investors in the SPAC. Of course 
the acquisition of a controlling 
stake in a private company by a 
SPAC is also a method to take the 
company public. Investors want 
access to companies like Airbnb 
and Pinterest, which traditionally 
would have likely been public 
by now but have been able to 
scale with massive amounts of 
capital in the private markets. 
From a transactional perspective 
on liquidity, the salient point is 
reaching an agreement that can 
satisfy all participants. Accordingly, 
more bespoke SPACs targeting 
specific unicorns are likely to ensue.
4. Signposts in a shifting land
Confronted with a challenging, 
competitive marketplace, as of 
late, GPs, LPs and even employees 
have increasingly employed 
creative methods to get what 
they want—their money back and 
then some. Clear signs of change 
have emerged from the shifting 
landscape, hinting at which seller 
preferences are taking priority and 
the top choices of owners of equity 
in not only private companies but 
also investment firms themselves. 
The upshot is that, promisingly 
enough, all the ways and means 
enumerated here aren’t likely to 
be the end-all, be-all of how fund 
managers get capital back to their 
investors and employees finally 
cash out of the companies they’ve 
spent years building. Rather, they 
represent a current snapshot of 
how the entirety of private markets 
players are opening their minds 
to new ways of buying and selling 
pieces of value in multiple markets, 
trying to find the right matches 
for the right assets. The signposts 
of this snapshot are clear, and yet, 
it is always worth bearing in mind 
that the evolution of liquidity in 
private markets all around them will 
continue, slowly and gradually.
21
PitchBook Private Market PlayBook 2Q 2018
20
PitchBook Private Market PlayBook 2Q 2018
2018 has set the economy on a 
new course. Recent legislative 
changes lowered corporate taxes; 
tensions among trade partners 
have stirred into the possibility 
of a trade war; and interest rates 
have risen. These shifts present 
challenges throughout the financial 
Hot middle market lending environment 
comes with competition and new 
challenges
impact of tax change. Since then, 
much of the activity has been 
driven by repricings, refinancings, 
and add-on acquisitions. We 
expect strong M&A activity 
through the remainder of the year. 
Senior stretch and unitranche are 
the favored structures utilized 
by sponsors given the ease of 
execution for the original platform 
and for future acquisitions to 
support the growth strategy. First-
lien/second lien structures provide 
the most leverage for transactions 
with higher purchase multiples. 
However, given the rise in LIBOR 
rates, fixed-rate mezzanine debt is 
becoming more cost competitive 
relative to second lien. 
Before we get granular, what’s 
your opinion of where we are at in 
the credit cycle and how that will 
impact middle market lending? 
What about broader economic 
trends?
2018 has been a strong year to 
date, and we expect positive 
performance through the course 
of the year. It seems everyone is 
on pins and needles waiting for a 
downturn based on where we are 
in the current credit cycle along 
with noise around inflation, interest 
rates, rising trade tariffs, and a 
potential trade war. You cannot 
mitigate an economic correction, 
however, you can back the right 
company, management team and 
sponsor, particularly those that 
have experience working through 
(and emerging from) an economic 
downturn. The senior professionals 
at Twin Brook have been focused 
on the middle market for the last 
20+ years and have been through 
multiple cycles. We are not afraid 
of another downturn because 
of that experience. Unlike many 
new entrant middle market firms, 
we have invested in staff and 
resources that follow a “credit first” 
mentality in both a down market 
as well as a bull market. We are 
committed to a long-term strategy. 
We strongly believe that the lower 
end of the market is in a much 
better position as it relates to the 
basic protections that exist in our 
credit agreements, which makes 
us far more resilient in the face of a 
market correction.
Given the level of competition 
in the current environment, 
particularly with newer entrants 
into private debt, what do you 
think will help firms achieve 
differentiation?
The reality is that most of the new 
money we see coming into the 
middle market is directed to the 
upper end of the market. Why? 
This is where more syndicated 
transactions occur that require 
participants who are happy to 
Jessica joined Twin Brook Capital Partners in 2015 and is a Director on the Capital Markets team. 
She is responsible for structuring, underwriting, documenting and syndicating leveraged finance 
transactions for middle market private equity sponsors. 
Previously, Jessica was in the underwriting group at Twin Brook. Prior to joining the firm, Jessica held 
various roles at BMO Harris Bank, Antares Capital and GE Capital. Jessica earned a B.S. in finance and 
accounting from the University of Wisconsin-Madison and received an M.B.A. in finance and economics 
from the University of Chicago Booth School of Business.  
play that role. New entrants are 
not staffed for a direct origination 
model, nor do they have the depth 
of sponsor relationships or years 
of experience in middle market 
cultivating those relationships. If 
you review the top 15 lenders in 
the middle market league tables, 
you will notice that all of those 
lenders have been in existence for 
more than 10 years. There are no 
new entrants that are taking share 
in the middle market. To that end, 
we believe what matters most 
are reputation, relationships, and 
the strength of the originations 
platform. As we continue to grow 
our portfolio and increase the 
number of relationships, being the 
incumbent is also meaningful.  
Across the Twin Brook platform 
to date, we are the Administrative 
Agent/Co-lead Arranger in 89% of 
our transactions. The incumbent 
lender has the advantage of 
knowledge of the business, 
familiarity with the management 
team, and speed of execution. In 
summary, Twin Brook’s sponsor 
relationships and experience in the 
lower middle market, our role as 
an administrative agent, and our 
desire to stay focused on the same 
strategy that we have pursued for 
15+ years differentiates us from a 
competitive perspective.
You cannot mitigate 
an economic 
correction; however, 
you can back the 
right company
We strongly believe 
that the lower end 
of the market is 
a much better 
position
What matters 
most is reputation, 
relationships and 
the strength of 
the originations 
platform.
Jessica Nels 
Director 
Twin Brook Capital Partners
world, including the debt market, 
where lenders will have to adapt 
in order to succeed. Jessica Nels 
provides thoughts on how recent 
changes will affect the overall 
lending marketing, with a special 
focus on the middle market. 
Thus far in 2018, what is your take 
on lending activity within the US 
middle market?
2018 has been a busy year. The 
beginning of the year was marked 
by deal flow carried over from the 
fourth quarter of 2017, particularly 
as the community questioned the 
A Q&A with Twin Brook Capital Partners
23
PitchBook Private Market PlayBook 2Q 2018
Within the middle market, are you 
seeing increased stratification 
across structures, terms and the 
like according to each segment, 
i.e. lower, core and upper middle 
market segments? If not, what are 
your conclusions?
We see the middle market divided 
up into three categories based 
on EBITDA size. First, the upper 
middle market we define as 
borrowers with greater than $40 
million of EBITDA. This segment of 
the market is effectively a broadly 
syndicated loan (BSL) market, i.e. 
cov-lite transactions, very loose 
structures (negative covenants, 
EBITDA definitions, etc.), arrangers 
that negotiate credit agreements 
but hold less than 10% of the paper, 
broadly distributed and, in this 
market, oversubscribed resulting 
in yield compression. Second, the 
core middle market, is generally 
comprised of issuers with EBITDA 
between $25 million and $40 
million. This segment of the market 
tends to have a single covenant 
but generally at large (35%-40%) 
cushions with little to no step-
downs (commonly referred to as 
covenant-wide). The core middle 
market tends to derive its credit 
agreements from the BSL market, 
so the overall protections are weak. 
Finally, the lower middle market 
(where Twin Brook focuses) is 
dramatically different in terms 
of overall structure and financial 
covenants (multiple covenants with 
lower cushions and step-downs). 
The credit agreements are much 
tighter than the aforementioned 
segments of the market and 
arrangers typically hold 50%-100% 
of the transaction. The yield on 
these deals reflects the size of the 
issuers but more importantly there 
tends not to be the bake-off or 
auction-type process that dictates 
About Twin Brook Capital Partners
Twin Brook Capital Partners is a finance company focused on providing cash-
flow based financing solutions for the middle market private equity community. 
The firm is managed by highly experienced, dedicated professionals who have 
successfully worked together throughout their careers at leading middle market lending institutions. Twin Brook’s 
flexible product suite allows for tailored financing solutions for leveraged buyouts, recapitalizations, add-on 
acquisitions, growth capital and other situations. 
Twin Brook focuses on loans to private equity-owned companies with EBITDA between $3 million and $50 million, 
with an emphasis on companies with $25 million of EBITDA and below. Since inception in the fourth quarter of 
2014, Twin Brook has acted as Lead/Co-Lead Arranger on 89% of deals funded (2015-2018), acquired $5.8 billion 
of committed capital, and closed 195 transactions. 
For more information, visit twincp.com
the pricing in the core and upper 
middle market.
What concerns you the most when 
you consider what could impact 
your firm’s prospects in the rest 
of 2018?
The primary challenge that any 
lending firm has in a “hot” credit 
environment is that there are far 
more sub-optimal transactions that 
come to market. When (i) leverage 
markets are awash with money, (ii) 
PE firms are eager to deploy capital, 
and (iii) purchase price multiples 
are at an all-time high, these weaker 
borrowers stand a much better 
chance of trading and/or getting 
financed. The outcome of this is 
that we need to say “no” more often 
to our sponsors or possibly deploy 
resources triaging deals that we 
would not normally spend time 
on. Twin Brook maintains its credit 
discipline and prides itself on being 
highly selective, generally booking 
less than 4% of the transactions it 
sees in any given year. The flood 
of weaker deals can put pressure 
on resources and underwriting 
bandwidth. 
See how the PitchBook Platform can 
help VCs invest smarter. 
demo@pitchbook.com
We do 
pre-money valuations,
cap tables,
series terms,
custom search,
growth metrics.
You invest  
in the next big thing.
Twin Brook 
maintains its 
credit discipline 
and prides itself 
on being highly 
selective
25
PitchBook Private Market PlayBook 2Q 2018
24
PitchBook Private Market PlayBook 2Q 2018
Drawn from our flagship industry reports covering private equity, 
venture capital and M&A, this section of the PlayBook contains 
analysis and datasets summarizing the primary trends shaping 
each market.
US Venture Capital 
26
US Private Equity 
30
European Venture Capital 
34
European Private Equity 
38
Global M&A 
42
Market Trends
27
PitchBook Private Market PlayBook 2Q 2018
26
PitchBook Private Market PlayBook 2Q 2018
With over $28 billion invested into 
the US venture ecosystem, 2018 is 
pacing to extend the trends we’ve 
grown accustomed to over the last 
few years of total capital invested 
figures soaring to unprecedented 
levels. While the top-line count of 
completed financings declined 
significantly on a quarterly basis 
in 1Q, we maintain our conviction 
around the health of investment 
activity because of the stability of 
completed financings at both the 
early and late stage. The primary 
driver of the decline in round 
counts can be attributed to the 
angel market, which has continued 
to see the pace of investment 
decline rapidly since mid-2015. 
However, we see the proliferation 
of pre-seed investment activity 
as a key driver in the market that 
can be rather elusive from a data 
perspective as many of these deals 
happen under the radar. Thus, 
activity across some of the earliest 
stages of investment activity may 
be understated, and we think 
entrepreneurs are finding novel 
avenues to finance new ideas and 
business ventures. 
Late-stage activity remains poised 
for another notable company 
fundraising year. Unicorn activity 
represented over 21% of all 
venture capital invested in the 
US in 2017, with more than $17.5 
billion deployed into companies 
valued over $1 billion during the 
period. Through the first quarter 
of 2018, activity in that subset 
of the market remains on track 
to surpass 2017’s record total. 
Investors have piled roughly $5 
billion in net new** capital into such 
companies, accounting for over 18% 
of all capital invested in the US last 
quarter. 
While late-stage investments in 
unicorn companies have become 
more prominent given the growing 
age of privately held businesses, 
round sizes of $1 billion+ certainly 
have not. That said, 1Q alone saw 
three such transactions close, with 
both Lyft and Faraday Future 
holding final closes on rounds 
launched in 4Q at $1.7 billion and 
$1.5 billion, respectively, and Uber 
closing a $1.25 billion round. For 
comparison, 2017 in its entirety saw 
just three completed financings of 
$1 billion or more. Moving forward, 
we think rounds of this magnitude 
will still remain outliers. Moreover, 
as behemoths such as Uber tap 
investors for massive rounds, one 
item to note is that not all of that 
money is primary capital being 
used to fund operations. Rather, an 
increased proportion of some of 
these rounds represents secondary 
capital where certain investors and 
employees are finding avenues to 
generate liquidity as hold periods 
have lengthened and exit processes 
have been delayed. 
1Q marks fourth consecutive quarter with more than $20B invested 
US VC activity
PitchBook-NVCA Venture Monitor
0
500
1,000
1,500
2,000
2,500
3,000
$0
$5
$10
$15
$20
$25
$30
1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 2018
Deal value ($B)
# of deals closed
Angel/seed
Early VC
Late VC
Last, private equity continues 
to play an increasing role in the 
venture market. $8.5 billion worth 
of transactions last quarter involved 
PE investors, the highest quarterly 
figure we’ve tracked since mid-2012, 
despite these firms participating 
in just 8% of VC financings. On 
the exit front, the proportion of 
completed VC-backed sales to PE 
declined relative to 2017, during 
which the highest percentage of PE 
buyout exits were completed we’ve 
ever tracked. Given we are still 
early in the year, however, we fully 
expect to see increased activity by 
PE groups in the venture markets 
similar to what we saw in 2017 for 
the following reasons. 
Through the first quarter of the year, 
15% of all completed PE transactions 
were done in the software space, 
which is up relative to the 12% we’ve 
seen historically. Further, the PE 
transaction ecosystem continues 
to support such deals, particularly 
as companies have been able to 
establish recurring revenue, cashflow 
positive and cash-efficient software 
businesses that fit nicely with the 
debt structures PE firms typically 
utilize to complete leveraged 
buyouts. As roughly 40% of all 
venture transactions consistently 
occur in the software space, the 
venture markets will continue to 
provide a fertile sourcing ground 
for PE firms looking to locate quality 
software targets.
$1.0
$1.4
$6.0
$9.2
$11.1
$15.0
$0
$2
$4
$6
$8
$10
$12
$14
$16
2008 2009 2010 2011
2012
2013
2014 2015
2016 2017 2018*
Angel/seed
Early VC
Late VC
Early-stage rounds grow in size by roughly 50% 
Median deals size ($M) by stage
$11.0$6.8$6.6$12.2$9.1$9.9$19.3$26.6$25.7$23.1$8.5663
451
424
515
556
619
749
764
652
642
139
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
# of deals closed
$6.6$2.4$2.6$13.6$17.0$18.6$17.5$7.2**7
7
9
28
24
23
71
81
55
75
17
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
# of deals closed
Strong start to year for unicorns 
US unicorn activity
PE continues to be highly involved 
US VC activity with PE participation
PitchBook-NVCA Venture Monitor 
*As of March 31, 2018 
PitchBook-NVCA Venture Monitor 
*As of March 31, 2018
PitchBook-NVCA Venture Monitor 
*As of March 31, 2018
**two rounds previously closed in 4Q 
have been adjusted to a 1Q 2018 close 
due to more capital being added
US Venture Capital
Overview
29
PitchBook Private Market PlayBook 2Q 2018
28
PitchBook Private Market PlayBook 2Q 2018
$9.1$4.8$7.9$9.9$8.8$9.2$7.8$8.6$6.8$26.3$11.9$10.5$3.9$8.9$11.4$13.1$14.0$11.6$18.2$36.8$8.7$10.5$14.5$15.3$11.1$16.7$15.9$9.3$17.2$13.0$14.3$12.6$8.10
50
100
150
200
250
300
$0
$5
$10
$15
$20
$25
$30
$35
$40
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2010
2011
2012
2013
2014
2015
2016
2017
2018
Exit value ($B)
# of exits closed
Exit slide during three of past four quarters 
US VC-backed exit activity
$31.7$12.2$20.0$25.9$24.1$21.3$36.2$36.1$40.9$33.3$7.9192
123
161
156
203
224
295
283
300
235
54
2008 2009 2010
2011
2012
2013
2014
2015
2016
2017 2018*
Capital raised ($B)
# of funds closed
2018 pacing as another $30B year for VC funds 
US VC fundraising activity
PitchBook-NVCA Venture Monitor
PitchBook-NVCA Venture Monitor 
*As of March 31, 2018
$45M
median US VC fund 
size ($M) closed  
in 1Q 2018
Exits
Fundraising
Exit flow in 1Q 2018 came in a bit 
weaker than the same quarter a 
year ago, with $8.1 billion exited 
across 188 deals, representing a 19% 
decrease year-over-year in deal 
count. While this is a material drop, 
it is important to remember that 
exit timing is largely idiosyncratic 
and can be delayed for a multitude 
of reasons. Most recently that 
reason has been larger VC deals, 
which supply a longer cash runway 
for VC-backed companies and can 
decrease the sense of urgency to 
exit.
To that point, direct secondary 
sales of venture shares have 
become an increasingly popular 
way to give existing shareholders 
partial liquidity without a full exit 
event. Though this volume is not 
represented in the aggregate exit 
data, it is becoming a substantial 
source of alternative liquidity. The 
monster $8 billion the SoftBank 
consortium invested in secondary 
Uber shares in addition to the 
primary round is an extreme 
example, but illustrates how such 
a transaction can provide liquidity 
for early employees and investors. 
This capital returned back to VCs 
is more important now as portfolio 
company hold periods increase, 
because these secondary sales will 
flow through as distributions back 
to LPs.
Because of these aforementioned 
shifts in VC toward financing larger 
companies, it’s no surprise that exits 
over $100 million are driving the 
aggregate exit market on both a 
value and count basis. Additionally, 
due to VC’s reliance on “home-
runs,” these are also the exits that 
drive the majority of returns back 
to LPs. While Ring’s $1.2 billion 
acquisition by Amazon was the 
largest exit in terms of deal size, 
the most valuable company to exit 
in the first quarter was Dropbox 
with its $756 million IPO, which 
valued the company slightly under 
their 2014 private valuation of $10 
billion. We see the positive early 
performance from some of the 
larger VC-backed IPOs, during a 
more volatile and slightly negative 
broad stock market during the first 
quarter, as a potential bellwether 
of strong demand for these 
listings throughout the remainder 
of the year. However, sustained 
volatility throughout 2018 would 
likely cause some companies to 
pull their IPO plans or discourage 
those companies that are on the 
fence. That said, Smartsheet and 
DocuSign have filed for IPOs, which 
points toward more positivity 
around highly valued technology 
firms exiting to the public markets 
heading into 2Q.
So far in 2018, VC funds have 
closed on roughly $8 billion in 
commitments across 54 vehicles, 
putting both capital raised and fund 
count on pace to dip slightly from 
2017. A strong showing from micro-
funds (vehicles smaller than $50 
million) has pulled down the median 
fund size, though we expect a surge 
of larger funds closing later in the 
year to provide a boost in fund sizes 
and total capital raised. With two 
billion-dollar funds closed already 
and up to four more in the pipeline, 
2018 could still surpass last year in 
terms of total capital raised.
In the first quarter of 2018, micro-
funds made up 50% of fund count 
for the first time since 2015. Driven 
by seed and early-stage vehicles 
with niche strategies or regional 
focuses, the representation of 
smaller funds speaks to continued 
development of innovative 
strategies and emerging venture 
ecosystems. True Wealth Ventures 
Fund I, for instance, focuses 
exclusively on female founders, 
while Illinois Ventures’ Emerging 
Technologies Fund III seeks to 
capitalize research spin-outs from 
the University of Illinois. First-time 
funds have also made a strong 
showing with 11 vehicles closed in 
1Q 2018, putting this year on track 
to reach 2014’s decade high number 
of funds closed. 
Though capital raised is tracking 
lower so far, the outsized effects of 
mega-funds (vehicles $500 million 
or greater) will likely lift capital 
raised in the remainder of 2018, as 
four vehicles including Lightspeed 
Venture Partners and Social Capital 
have all announced intentions to 
raise funds of $1 billion or more in 
the near future. The impact from 
mega-funds is clear, as these funds 
made up 47% of all capital raised 
by venture funds in 2018, despite 
representing 5% of all closed 
vehicles. While three funds of over 
$1 billion were closed in all of 2017, 
three strategies have already closed 
in the beginning of 2018: Norwest 
Venture Partners’ $1.5 billion and 
General Catalyst Partners’ $1.37 
billion fund, as well as $1.25 billion 
raised across two complementary 
vehicles from Battery Ventures. 
VCs have taken to raising larger 
funds to garner the capital 
necessary to maintain a competitive 
stance against deep-pocketed 
investors, such as SoftBank, as 
deal sizes and valuations continue 
to rise. But strong fundraising is 
only possible if there is sufficient 
LP demand, and many institutional 
investors have been looking to 
allocate more to private market 
strategies—including VC—while 
trying to consolidate their allocation 
to fewer managers, resulting in 
larger but fewer fund commitments. 
While these mega-funds may offer 
GPs competitive advantages, they 
also bring into question whether 
their managers can deliver venture-
like returns, as GPs run the risks of 
overpaying in outsized rounds and 
overcapitalizing startups.
US Venture Capital
31
PitchBook Private Market PlayBook 2Q 2018
30
PitchBook Private Market PlayBook 2Q 2018
1,101
0
1,000
2,000
3,000
4,000
5,000
$0
$100
$200
$300
$400
$500
$600
$700
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Deal value ($B)
Estimated deal value ($B)
# of deals closed
# of estimated deals closed
$175.0
$560.4
$0
$100
$200
$300
$400
$500
$600
$700
$800
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Median
Average
1,1861,3931,5731,5001,9642,0602,0962,0314579261,0161,1739681,1721,2431,1711,17319756%
58%
57%
61%
63%
62%
64%
63%
70%
2010
2011
2012
2013
2014
2015
2016
2017
2018*
Non add-on
Add-on
Add-on % of buyout
PE activity likely to be healthier than initial numbers suggest 
US PE deal flow
Median deal size continues to grow 
Median and average buyout size ($M) in US
Source: PitchBook 
*As of March 31, 2018
Buy-and-build strategies here to stay 
Add-ons (#) as % of US buyouts
70%
of all buyout activity in 
1Q 2018
ADD-ON 
ACQUISTIONS 
ON THE RISE
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
US PE activity remained robust, but 
deal value took a hit through the 
first quarter of the year, with 1,101 
completed transactions totaling 
$88.8 billion in deal value, 4.0% and 
32.8% decreases, respectively, from 
1Q 2017. Despite the slowdown, we 
expect reported deal flow figures to 
tick upward in the coming months 
due in part to the 124 deals worth 
an estimated $94.3 billion that have 
been announced but not yet closed 
in 2018. In addition, private market 
data is often slower to come 
to market. As such, we suspect 
there are many deals—particularly 
secondary buyouts—completed 
in 1Q that may not appear in this 
dataset. 
Add-ons accounted for 70% of 
all buyout activity in 1Q 2018, 
shattering any previous notions 
that they may have reached a 
ceiling at two-thirds of all buyouts. 
Buy-and-build strategies account 
for a significant portion of the 
operational improvements on 
which managers pride themselves. 
These strategies have become 
more common in the last decade 
as competition has intensified 
for private assets, rendering the 
paydown of debt and multiple 
expansion less useful than they 
once were. Nearly one-third of PE-
backed companies now undertake 
at least one add-on acquisition, 
compared to only about 20% in the 
early 2000s. However, while add-
ons have grown more pervasive, a 
relatively small number of the most 
prolific buy-and-build investors 
have increasingly driven activity; 
roughly one-quarter of the add-on 
deals completed since 2014 were at 
least the fifth deal in the platform’s 
buy-and-build strategy.
Growth/expansion deals accounted 
for 25% of all PE deals in 1Q 2018, 
a modest uptick from the 22% 
recorded during the entirety of 2017. 
Growth equity represents one of the 
ancillary private capital strategies 
that have become more common 
in recent years as both GPs and 
LPs look to branch out from the 
traditional buyout model. The 
ascendance of the growth strategy 
has been driven in part by PE’s 
heightened interest in the software 
sector, which has traditionally been 
an area of relative underinvestment. 
Growth deals allow the founder 
and/or management team to retain 
some control over the operations—
an oft-cited concern of software 
founders. In 1Q 2018, software deals 
accounted for 21% of growth equity 
rounds, but only 13% of buyouts. 
We expect this corner of the market 
to continue growing over the 
medium term, particularly as PE 
and VC investors begin to interact 
more often. For example, nearly 
one-fifth of all VC-backed exits in 
2017 were via PE firms. 
As more competition has moved 
in and fund sizes have continued 
ballooning, multiples have 
expanded and LBO sizes continue 
to grow. The median buyout size 
in 1Q 2018 reached $175 million, a 
17% increase over the $150 million 
recorded during the entirety of 
last year. For further context, the 
full-year median buyout size has 
doubled since 2007, when it was 
just $75 million. We expect this 
trend to continue for as long as 
public equities remain in a bull 
market and PE firms continue to 
raise larger funds. 
These larger funds are also enabling 
an increase in take-privates, 
many of which are carveouts 
and corporate divestitures. Last 
year saw 382 PE transactions 
sourced via carveouts, corporate 
divestitures and asset divestitures, 
totaling $86.5 billion in deal value—
levels not seen since the financial 
crisis. Carveouts and divestitures 
often serve as a means of finding 
companies at lower multiples, with 
the assumption that the seller 
parent company underutilizes 
and/or undervalues some of their 
assets. This momentum continued 
into 1Q; of the 13 announced deals 
of $1 billion or more in 1Q, 10 were 
either take-privates or some sort of 
carveout/divestiture.
Overview
US Private Equity
33
PitchBook Private Market PlayBook 2Q 2018
32
PitchBook Private Market PlayBook 2Q 2018
48%
of PE-backed exits via 
secondary buyout in 1Q 
2018
0
50
100
150
200
250
300
350
400
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2010
2011
2012
2013
2014
2015
2016
2017
2018
Corporate acquisition
IPO
SBO
US PE-backed exits (#) by type
Source: PitchBook 
After a strong back half of 2017, exit 
activity slowed in 1Q 2018. At the 
sector level, the proportion of exits 
coming from the B2C space has 
been waning. Similar to what we’ve 
observed on the dealmaking front, 
IT is commanding a greater share 
of the exit market, representing 17% 
of activity in 1Q 2018, compared to 
15% in 2017. 
 
IPOs were a relatively popular exit 
route for PE-backed companies 
in 1Q 2018, despite the volatility in 
equity markets. The 12 offerings 
in the first quarter marked the 
third-highest total over the last two 
years. An IPO is typically viewed 
as the exit route of choice for large 
companies, with the assumption 
being that they are too big for 
an acquisition, but half of the 
PE-backed IPOs in 1Q 2018 had 
valuations of less than $1 billion.
Another interesting wrinkle in 
recent exit activity is that many of 
the massive club deals from the 
buyout boom that have plagued 
investors for years have finally been 
put to bed. Following its Chapter 
11 bankruptcy in 2014, investors in 
Energy Future Holdings—perhaps 
the most notorious buyout in 
history—finally washed their hands 
clean by selling the remaining assets 
to Sempra Energy. To be sure, this 
was unequivocally a poor outcome 
for investors, but it is preferable 
to Toys R Us—another cautionary 
tale of PE exuberance—which filed 
for Chapter 7 bankruptcy in March. 
While these high-profile failures have 
garnered significant attention, we do 
not think that they should be viewed 
as a harbinger for the industry going 
forward.
$185$262$184$121$70$92$115$197$192$198$229$242$37275
313
263
164
161
191
218
292
327
312
298
267
55
2006 2007 2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018*
Capital raised ($B)
# of funds closed
Coming off the strongest year in a 
decade, PE fundraising decelerated 
sharply in 1Q 2018, totaling just $36.6 
billion raised across 55 vehicles. 
Bifurcation continues to define the 
fundraising landscape. On one hand, 
successful GPs are aggressively 
Firms raise more capital across fewer funds 
US PE fundraising
$116$158$72$48$126$122$181$172$236$292$215$213$37758
928
634
427
829
905
1,127
1,051
1,313
1,360
1,249
1,179
196
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Exit value ($B)
# of exits
Exit activity decelerates early in 2018 
US PE-backed exits
raising their target fund sizes 
and many LPs have upped their 
allocations to PE while spreading that 
capital across fewer managers. To 
that end, large funds remain popular, 
with vehicles of $1 billion or more 
taking in more than half of the capital 
raised in the first quarter. We expect 
this trend to continue throughout the 
year, with at least eight open funds 
targeting $1 billion or more.
While LPs ingratiate themselves 
with established managers, there 
is also a desire to tap into the 
next generation of talent. Indeed, 
first-time fundraising has enjoyed 
a resurgence in recent years, with 
first-time managers accounting for 
nearly 10% of vehicles in 2017. One 
hurdle for many LPs considering 
first-time managers, however, is that 
the vehicles tend to be small, which 
can make it difficult for sizable 
investors to write meaningful checks. 
A group of investors, including the 
Alaska Permanent Fund Corporation 
and Wafra, have combined to create 
Capital Constellation—a joint venture 
that will provide capital to new 
alternative managers. Not only is the 
group looking to generate financial 
returns, but the consortium is also 
seeking insight into direct investing.
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Exits
Fundraising
US Private Equity
Small funds gaining share 
US PE fundraising (#) by size
Mega funds see a pullback in 1Q 
US PE fundraising ($) by size
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018*
$5B+
$1B-$5B
$500M-
$1B
$250M-
$500M
$100M-
$250M
Under
$100M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018*
$5B+
$1B-$5B
$500M-
$1B
$250M-
$500M
$100M-
$250M
Under
$100M
35
PitchBook Private Market PlayBook 2Q 2018
34
PitchBook Private Market PlayBook 2Q 2018
Capital invested is on track to nearly match 2017 total 
European VC deal activity
Larger financings account for a growing share of 
capital invested 
European VC activity by size (¤)
Capital invested by European 
VCs continues to sustain elevated 
levels despite another quarter of 
sliding deal count. With ¤4.4 billion 
invested across 571 rounds, 2018 
is on pace to nearly match last 
year’s aggregate capital investment. 
However, the first quarter’s 49% 
decrease in closed deals YoY 
indicates the fifth consecutive 
quarter deal count has trended 
downward. We do note that as 
we continue to collect data after 
quarter-end, deal count will likely 
show greater numbers later in the 
year. 
Both first-time financings and 
rounds closed at the angel & 
seed level have declined rapidly, 
accounting for much of the overall 
decrease in deal count. While some 
of this decline can be accounted 
for by under-reporting by investors 
and startups, the data suggests that 
capital is being invested in fewer, 
more mature startups at the angel 
& seed stage. The number of years 
from company founding at time of 
angel & seed round has increased 
to 1.1 years in 2018, up from just 
six months in 2014. In the same 
period, median angel & seed deal 
size saw a 2.9x increase, reaching 
¤981,000 in the first quarter of 2018, 
an indication that investors are also 
cutting larger checks to startups at 
this stage. The shift toward fewer, 
larger early financings (as well as 
the diminishing number of micro-
funds raised in recent quarters) 
appears to be a driving factor in the 
depressed angel & seed deal count 
in recent years. This trend is having 
knock-on effects throughout the 
VC funding lifecycle, as companies 
mature at subsequent financing 
stages. Consequently, larger check 
sizes have also become prevalent 
at the late stage, driving elevated 
levels of capital investment in 
recent years. The median late-
stage deal size for European 
startups reached ¤8.1 million in the 
first quarter of 2018, a 62% jump 
from 2017. Additionally, the 10 
largest deals in 1Q accounted for 
34% of capital invested, up from 
18% in 2017. German automobile 
marketplace platform AUTO1 Group 
raised the largest round in 1Q, 
receiving a ¤460 million investment 
from industry titan SoftBank. 
With European and global VCs 
increasingly raising larger funds, 
we expect to see these trends 
proliferate throughout the rest of 
the year. 
Deal value (€B)
# of deals closed
€3.5€4.9€5.5€4.5€7.0€6.9€8.3€8.8€12.4€16.9€15.3€18.3€4.41,051
1,431
1,609 1,615
2,182
2,717
3,308
4,235
5,039 5,033
4,568
3,701
571
2006 2007 2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018*
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20082009201020112012201320142015201620172018*€25M+
€10M -€25M
€5M-€10M
€1M-€5M
€500K-€1M
Under €500K
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20082009201020112012201320142015201620172018*€25M+
€10M -€25M
€5M-€10M
€1M-€5M
€500K-€1M
Under €500K
¤4.4B
total amount of VC 
invested across 571 deals 
in 1Q 2018
¤1.5B
1Q 2018 European VC-
backed exit value
¤8.1M
median late-stage deal 
size during 1Q, the largest 
figure we have tracked
Deals smaller than ¤1 million dwindle in 1Q 
European VC deal activity by size (#)
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Overview
European Venture Capital
37
PitchBook Private Market PlayBook 2Q 2018
36
PitchBook Private Market PlayBook 2Q 2018
Subdued exit totals so far in 2018 
European VC-backed exit activity
Capital raised on track for another strong year 
European VC fundraising
0
20
40
60
80
100
120
140
160
180
€0
€1
€2
€3
€4
€5
€6
€7
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2010
2011
2012
2013
2014
2015
2016
2017
2018
Exit value (€B)
# of exits closed
Just ¤1.5 billion of value exited 
across only 64 deals in 1Q 2018. This 
is a low total for both exit value and 
count; however, we don’t see any 
immediate source of worry due to 
the asymmetric timing of VC exits. 
Because acquisitions and IPOs 
require a mix of complex transaction 
structures, reliance on market 
conditions and long negotiations, 
these transactions can be prone to 
delays or long closing processes. 
Two of the largest deals completed 
in the first quarter were the ¤905 
million acquisition of Preston 
Therapeutics (developer of drugs 
to treat Parkinson’s) by Danish 
pharma Lundbeck, and Integrated 
Financial Arrangements exiting 
via IPO, raising ¤201 million at a 
¤735 million valuation. These deals 
illustrate the sustained strength of 
the exit ecosystem for software and 
pharmaceutical firms but also the 
outsized effect on total exit value, as 
these two deals make up 73% of our 
current recorded total.
Further depression of exit statistics 
can be partially attributed to capital 
availability, which has afforded some 
VC-backed companies the ability 
to scale into large multinational 
corporations without completing a 
traditional liquidity event.
The Spotify direct listing is a prime, 
though unconventional, example of 
this phenomenon. As the company 
opted to list publicly without raising 
any new capital, the transaction 
brought some excitement to the 
European VC exit environment and 
has the potential to significantly 
affect future exits. 
From the company’s perspective, 
we categorize the transaction as 
a success. Though the first trade 
was delayed due to the scarcity of 
guidance prior to the price discovery 
process, Spotify priced 5.6 million 
shares at $165.90 each, clearing 
nearly a billion dollars of value 
at a price 25.7% higher than the 
reference price of $132 (provided 
by Morgan Stanley, based on recent 
private secondary trading). 
Even though Spotify shares closed 
lower on both its first and second 
days of trading, the price has found 
some stability at around $150, easing 
worries about initial price volatility. 
Furthermore, this stability comes 
in the face of low trading volume 
relative to the percentage of shares 
that were eligible to sell immediately. 
For illustration, more than 90% of 
Spotify shares were and are eligible 
to be registered and trade at any 
time, but on the first day of trading 
volume representing less than 17% of 
shares changed hands, much lower 
than the long-term average first-day 
IPO turnover of 42%.
Private secondary market trading 
likely played a substantial role in 
both the volatility and volume of 
trading during the first few days, as 
these private trades allowed insiders 
with pressing liquidity needs the 
opportunity to lock in a price and 
allowed some new investors to 
begin building a position before the 
public debut. A direct listing will not 
be a solution for every company, 
however, as Spotify’s situation was 
unique with regard to its global 
reach and financial position. 
Source: PitchBook
With 18 vehicles closed by 
European VCs totaling ¤2.1 billion 
in commitments, 2018 appears to 
be on track to fall slightly short of 
2017’s fundraising metrics. However, 
should European VCs close larger 
funds than they have in recent 
years, capital raised in 2018 could 
still match or exceed 2017’s total. 
Median fund size has trended up to 
a decade high of ¤86 million in the 
first quarter of 2018, reflecting VCs’ 
shift toward writing larger checks to 
mature companies. Additionally, a 
push by the European Commission 
and the European Investment Fund 
to seed European fund managers 
with their fund-of-funds program, 
VentureEU, will also provide a 
boost to fundraising. VentureEU 
estimates that after its aggregate 
commitment of ¤410 million, the 
select funds will aim to raise an 
additional ¤1.7 billion, which could 
boost fundraising by a total of ¤2.1 
billion over the next few years. 
The number of larger funds raised 
by European managers has been 
low historically, but recent activity 
suggests this trend is beginning 
to shift in 2018. Only in the peak 
fundraising cycle of 2016 have there 
been at least nine funds closed in 
the ¤250 million and ¤500 million 
range. This year, however, three 
funds in this echelon have closed 
already, almost halfway to 2017’s 
count. These larger vehicles will 
no doubt be a vital resource for 
growing the European venture 
ecosystem. Eight Road Ventures 
Europe cites the large fundraise 
of its $375 million (¤303 million) 
growth capital vehicle as necessary 
for filling the gap in funding to 
support ever-growing venture-
backed startups. 
While larger funds will be helpful 
to mature startups, the dearth of 
early-stage capital may hinder the 
development of next-generation 
entrepreneurs seeking out small 
funding rounds. In the first quarter 
of 2015, VCs raised 19 micro-
funds (vehicles smaller than ¤50 
million). In 2018, however, only 
four have been closed, as early-
stage investors have continued to 
raise larger funds. London-based 
Kindred Capital, for instance, raised 
a ¤90 million seed investment 
vehicle—significantly larger than 
what traditional seed funds once 
looked like. While large funds are 
an important step forward for 
the maturing European venture 
ecosystem, a shortage of capital 
for smaller investments may create 
an imbalance in available funding 
sources. 
€9.1€4.0€6.0€6.2€8.5€7.0€5.5€9.6€10.0€8.8€2.1156
122
122
137
118
119
101
97
82
72
18
2008 2009 2010 2011
2012
2013
2014
2015
2016
2017 2018*
Capital raised (€B)
# of funds closed
119
¤110M
average European VC 
fund closed in 1Q 2018
18
total number of fund 
closings across Europe 
in 1Q
¤345M
size of largest European VC 
fund closed in 1Q (Edmond de 
Rothschild Investment Partners)
Source: PitchBook 
*As of March 31, 2018
Exits
Fundraising
European Venture Capital
39
PitchBook Private Market PlayBook 2Q 2018
38
PitchBook Private Market PlayBook 2Q 2018
Proportion of deal flow increases in UK & Ireland 
European PE deal activity (#) by region 
Central & Eastern Europe see a smaller share  
of deal value 
European PE deal activity (¤) by region
Completed deal flow slows in 1Q 
European PE deal flow
€324€209€90€171€194€185€208€290€395€333€381€510
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
€0
€50
€100
€150
€200
€250
€300
€350
€400
€450
2007 2008 2009 2010
2011
2012
2013
2014
2015
2016
2017 2018*
Capital invested (€B)
Estimated # of deals closed
# of deals closed
Estimated deal value (€B)
¤33.9M
median European PE  
deal size
¤62.5B
total European PE deal 
value in 1Q 2018
36%
percentage of completed 
deals located in the UK or 
Ireland
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Following three consecutive years 
of strong activity, European PE deal 
flow declined substantially in 1Q 
2018. Only 690 deals totaling ¤62.5 
billion were completed across the 
region, representing 7% and 21% 
quarter-over-quarter decreases, 
respectively. Though completed 
deal flow was stagnant, a flurry of 
deals announced in 4Q 2017 and 1Q 
2018 have yet to close, which should 
aid completed counts through the 
remainder of the year. Notable 
announcements include Unilever’s 
planned ¤11.8 billion divestiture of 
its spreads business to KKR, as well 
as Advent International’s ¤1.7 billion 
take-private of electronics firm Laird.
As fundraising and dry powder 
have grown in recent years, so too 
has the necessary check size for 
efficient deployment of capital. The 
median deal size increased to ¤33.9 
million for deals completed in 1Q 
2018, higher than any full-year total 
since 2006. By comparison, the 
median size of PE deals completed 
in the US this quarter clocked in 
at ¤175.0 million. Nonetheless, the 
private capital ecosystem is poised 
to continue growing, aided by the 
availability of alternative lenders 
and a relatively healthy economy. 
Eurozone GDP grew by 2.4% in 
2017—the fastest in the last decade—
though early estimates from 2018 
point to a modest deceleration in 
growth. 
The UK and Ireland accounted 
for 36% of completed deals in 1Q 
2018, having grown from 33% last 
year and 30% in 2016. In the UK, 
Brexit’s direct impact is the obvious 
explanation for the proportionally 
strong deal flow, with worries about 
eventual exclusion from the single 
market leading to carveouts and 
branch relocations, but Brexit’s 
knock-on effect of GBP depreciation 
relative to the EUR is also a factor. 
In the UK, GBP-denominated 
assets are currently viewed by 
outside investors as temporarily on 
sale, with the hope that prices will 
bounce back once the UK economy 
re-establishes itself outside the EU. 
This is especially the case for EUR-
denominated investors, while the 
USD’s recent weakening has made 
this trade less appealing for US-
based investors. 
On a sector basis, B2B investments 
still accounted for a plurality (37%) 
of transactions in 1Q, consistent 
with trends over the last decade. 
Meanwhile, IT investments have 
become more popular, rising from 
12% of deals in 2011 to 20% in the 
most recent quarter. In particular, 
SaaS businesses have caught 
the attention of GPs due to their 
scalability and recurring revenue 
models. The healthcare sector 
accounts for 7% to 8% of deal flow 
over the last decade—about half 
the 12% to 16% it accounts for in the 
US—likely due to the prevalence 
of government-backed healthcare 
systems in Europe.
Overview
European Private Equity
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20082009201020112012201320142015201620172018*UK/Ireland
Southern
Europe
Nordic
Region
DACH
France/
Benelux
Central &
Eastern
Europe
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20082009201020112012201320142015201620172018*UK/Ireland
Southern
Europe
Nordic
Region
GSA
France/
Benelux
Central &
Eastern
Europe
41
PitchBook Private Market PlayBook 2Q 2018
40
PitchBook Private Market PlayBook 2Q 2018
0
200
400
600
800
1,000
1,200
1,400
1,600
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Corporate acquisition
IPO
SBO
€0
€50
€100
€150
€200
€250
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Corporate acquisition
IPO
SBO
SBOs constitute a growing proportion 
European exits (#) by type
IPOs off to a slow start this year 
European exits (¤B) by type
€77€21€61€113€81€100€160€193€138€178€26700
509
730
963
858
1,065
1,170
1,389
1,259
1,210
218
2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018*
Exit value (€B)
# of exits closed
Exit activity decelerates in early 2018 
European PE exit activity
Despite just 15 funds closing in 
1Q 2018, total fundraising came 
in at ¤28.8 billion as the median 
fund size leapt to ¤410.6 million. 
The migration to larger vehicles is 
occurring in other regions as well, 
but the trend is particularly strong 
in Europe. Funds of ¤5 billion+ took 
in a record ¤29.3 billion in 2017, and 
with ¤22.9 billion already closed 
in 1Q, 2018 is the second-highest 
annual total ever. 
If we assume this pace sustains 
throughout 2018, it would mark a 
new European fundraising record 
and the first time that annual 
capital raised eclipsed ¤100 
billion; however, we believe that 
fundraising will decelerate through 
the rest of the year.
When looking at the 1Q data, it’s 
important to recognize that EQT 
closed on ¤10.75 billion for its 
eighth buyout fund—making it the 
third-largest European buyout 
fund in history and only the fifth to 
surpass the ¤10 billion mark—but 
there are no comparable funds 
on the horizon. Including the EQT 
vehicle, European PE firms closed 
on three funds of ¤5 billion+ in 1Q, 
which ties the annual record. Of 
the 10 firms that raised the most 
capital since 2006, nine have closed 
a fund of at least ¤1 billion since 
the beginning of 2016. The lone 
exception is Bridgepoint, which is in 
the market seeking ¤5.5 billion for a 
new buyout vehicle. 
To that end, we expect some mean 
reversion in the fundraising data 
because most of the largest firms 
are now sitting on large stockpiles 
of dry powder. That being said, 
there is evidence that LP appetite 
for these vehicles remains strong, 
with The Carlyle Group recently 
announcing a first close of ¤3.3 
billion for Carlyle Europe Partners V, 
which has a target of ¤5 billion. And 
while there are still 15 open funds 
seeking ¤1 billion or more, most of 
the targets are less than ¤2 billion. 
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20082009201020112012201320142015201620172018*€5B+
€1B - €5B
€500M- €1B
€250M- €500M
€100M - €250M
Under €100M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20082009201020112012201320142015201620172018*€5B+
€1B - €5B
€500M- €1B
€250M- €500M
€100M - €250M
Under €100M
Firms close three ¤5B+ funds in 1Q 2018, tying 
annual record 
European PE fundraising (#) by size
Mega-funds account for majority of capital raised in 
1Q 2018 
European PE fundraising (¤) by size
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Source: PitchBook 
*As of March 31, 2018
Both exit value and exit count in 1Q 
2018 fell to the lowest levels in the 
last four years; however, several 
signs suggest that activity will 
accelerate through the rest of the 
year. First, while just five exits of 
¤1 billion or more were completed 
in 1Q, there are an additional eight 
exits of this size that have been 
announced but not yet closed.
In addition to the drop-off in ¤1 
billion+ exits, we also observed a 
relative decline in upper-middle-
market exits (¤500 million to ¤1 
billion) that resulted in a precipitous 
decline in the median exit size. For 
exits via corporate M&A, the median 
exit size plummeted to ¤47 million 
in 1Q 2018—the lowest point since 
2010. Secondary buyouts in 1Q 
were smaller, too, while the median 
PE-backed IPO was only ¤70 million, 
down from ¤120 million in 2017.
SBOs, which represented a plurality 
of European PE exits for the first 
time ever in 2017, continued to play 
a prominent role in 1Q, accounting 
for 52% of all exits. Their increasing 
importance is also apparent when 
looking at capital exited; six of the 
eight largest exits in 1Q came via 
SBO, including Scandlines and 
Albéa.
Though exit activity was down across 
Europe in 1Q, the steepest declines 
came from Southern as well as Central 
and Eastern countries. The UK and 
Ireland proved most resilient on an 
exit count basis; however, quarterly 
exit activity still fell to the lowest point 
in the last year and a half.
Exits
Fundraising
European Private Equity
43
PitchBook Private Market PlayBook 2Q 2018
42
PitchBook Private Market PlayBook 2Q 2018
After a strong 2017, M&A activity 
got off to a sluggish start in the first 
quarter of this year. Across North 
America and Europe, 4,867 deals 
were completed in 1Q 2018, totaling 
$616.7 billion in value—18% and 
25% YoY decreases, respectively. 
Though completed deal count slid 
substantially, an additional 973 
deals totaling an estimated $451.3 
billion have been announced but 
have yet to close. On that account, 
combined with the knock-on effects 
of corporate tax cuts in the US and a 
relatively stable European economy, 
we expect completed deal flow 
to increase through the remainder 
of the year. Notable transactions 
announced in the first quarter 
include Keurig Green Mountain’s 
$23 billion take-private of Dr Pepper 
Snapple Group and Blackstone’s $17 
billion carveout of Thomson Reuters’ 
financial and risk business. Both 
transactions reflect two prominent 
themes in today’s M&A landscape: 
the growing influence of PE and the 
interplay between public and private 
markets. 
The IT and B2B sectors saw their 
shares of M&A activity increase 
in 1Q, accounting for 19.5% and 
38.6% of completed transactions, 
respectively. The IT sector continues 
to play a more prominent role for 
strategic and financial acquirers alike, 
commanding a greater share of 
both deal flow and capital invested. 
Fast-changing technology continues 
to pose a threat to existing business 
models, forcing incumbents to either 
ramp up R&D or to acquire more 
nimble competitors. In addition, 
IT companies are increasingly 
being acquired by businesses in 
non-tech sectors, accounting for 
45.4% of deal flow. Meanwhile, B2C 
transactions accounted for just 15.9% 
of deal flow in 1Q 2018. Interest in 
traditional B2C assets has dwindled 
as tech-focused firms continue 
making inroads into consumer-
facing segments. Further, businesses 
that were once thought of as being 
traditional B2C, such as retail, are 
now created as tech-focused 
ecommerce firms. 
The number of intercontinental M&A 
deals has also trended upward in the 
last decade, particularly in Europe. 
In 1Q 2018, 13.6% of European 
M&A transactions involved a non-
European buyer—having increased 
from last decade’s nadir of 9.0% in 
2009. By contrast, the proportion 
of North American transactions 
with an acquirer from another 
continent has grown more slowly, 
from 6.4% in 2009 to 8.2% in 1Q 
2018. Intercontinental activity in 
Europe is higher due in part to 
the prevalence of North American 
buyers, particularly US-based PE 
firms and Canadian LPs executing 
direct investments, with substantial 
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2014
2015
2016
2017
2018
Materials &
resources
Healthcare
Financial
services
Energy
B2C
B2B
IT
Deal count continued to slide in 1Q  
M&A activity in North America & Europe
$3,002$1,942$1,101$1,682$2,025$2,158$2,231$2,988$3,444$3,437$3,081$5260
5,000
10,000
15,000
20,000
25,000
30,000
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2007 2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018*
Deal value ($B)
Estimated deal value ($B)
Deal count
Estimated # of deals closed
operations across the Atlantic. On 
the other hand, European investors 
have traditionally exhibited a 
propensity to invest close to home. 
Nonetheless, both regions have seen 
an increase in activity from foreign 
buyers, partially driven by the fact 
that such acquisitions serve as an 
efficient way to expand a company’s 
footprint in today’s global economy.
B2C clout continues to shrink 
M&A (#) by sector in North America & Europe
B2B commands a growing share of capital 
M&A ($) by sector in North America & Europe
Source: PitchBook 
Source: PitchBook 
$617B
total value across North 
America and Europe M&A 
in 1Q 2018
$149B
total value of 
announced divestitures
15.9%
proportion of total deal 
flow attributed to B2C 
companies in 1Q 2018
Source: PitchBook 
*As of March 31, 2018
Overview
Global M&A
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2014
2015
2016
2017
2018
Materials &
resources
Healthcare
Financial
services
Energy
B2C
B2B
IT