the Rise of Private Capital Keeps Startups From Going Public
A growing trend sees technology startups remaining private for extended periods, fueled by a surge in alternative investment options. Last week’s sale of employee shares at OpenAI, which valued the company at over $500 billion, surpassed SpaceX‘s $400 billion valuation and cemented its position as the world’s most highly valued private company.
Analysts and economists attribute this preference for remaining private to the regulatory burdens and short-term pressures associated with public markets. However, the increasing availability of capital from sources like sovereign wealth funds, family offices, venture capital, private equity, and private credit provides ample funding for today’s tech startups.
Global private-equity assets under management have grown by over 15% annually over the past decade, reaching over $12 trillion, according to data from preqin. projections indicate this figure could double to approximately $25 trillion within the next decade.
Venture capital assets under management in North America are also expected to increase, rising from $1.36 trillion at the beginning of 2025 to $1.8 trillion in 2029, as reported by PitchBook.
“One of the main reasons for going public is to raise capital,” explained professor Jay Ritter. “Now there are a lot of good alternatives to raising capital without going public.”
Ritter also highlighted the emergence of digital marketplaces like Forge global and EquityZen, which offer employees liquidity for their equity holdings without requiring an initial public offering (IPO).
The experience of Klarna, a Swedish fintech startup founded 20 years ago, illustrates the volatility of the pre-IPO landscape.Valued at $45.6 billion in 2021 following a funding round led by SoftBank, its valuation plummeted to $6.7 billion in 2022 as the “buy now, pay later” market cooled. Klarna received funding from investors including Sequoia Capital, IVP, atomico, GIC, and Heartland, the family office of Danish billionaire Anders Holch Povlsen, before going public last month. Currently, Klarna’s market capitalization stands at $15 billion.
While private equity and venture capital firms often argue that the most rapid growth and highest returns occur in a startup’s early stages,diminishing by the time of an IPO,Ritter suggests the evidence is more nuanced. Although private equity and venture capital have historically outperformed public markets,he believes the recent influx of capital into alternative investments and the high prices paid for assets could signal a shift.
“Money flows into an asset class as long as there are abnormal returns,” Ritter said. “But so much money has poured in, I don’t expect there to be abnormal returns in the future.”
