Private equity invested 76% less in Q1

April 24th, 2009, 5:00 am · Post a Comment · posted by Jan Norman, small-business columnist

Private equity investments in U.S. companies plunged 75.5% to $13 billion in the first quarter, compared to a year earlier, says PitchBook, an independent research firm that provides data, news and analysis to the private equity industry.

The number of deals financed by private equity in the first quarter dropped 54.4%.

Here is PitchBook’s data on number of deals and dollars in the past five years (click on the image for a larger view):

Source: Pitchbook

Among Orange County private equity funding recipients are:

NeoMatrix, Irvine, which maked HALO, a breast cancer risk assessment device
Boot Barn, an Orange retail chain
Analytix on Demand, an Irvine business intelligence firm

The forces driving private equity down are the same as for housing, bank lending and venture capital: The valuations of companies are uncertain and the economy is weak. Or as PitchBook states: “Deal activity continues to slow as investors wait for valuations and the economic outlook to stabilize.”

Private equity funds get their money from high-wealth individuals and institutional investors and put the money directly into private companies or to public companies that want to go private.

Private equity investment is the most important funding source for entrepreneurial companies. Private equity in the first quarter, for example, invested four times the money that venture capitalists did. At private equity’s peak of $177 billion invested during the fourth quarter of 2007, these funds and individuals were outinvesting venture capital 22-fold.

The facts that private equity funding has collapsed almost 93% from the peak and venture capital investing is the lowest in more than 10 years give you some idea how tough it is for young companies to raise money these days.

Private equity fundraising, $38 billion, was also the lowest in the last five years. But PitchBook says funds are sitting on a lot of money raised previously waiting for the economy and credit markets to stabilize.

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