the โขRise of Private โCapital Keeps Startups From Going Public
A growing trend sees โฃtechnology startups remainingโข private for extended periods, โfueled by aโค surge in alternative investment options.โฃ Last week’s saleโข of employee โฃshares at OpenAI, which valued the company at over $500 billion, โคsurpassed SpaceX‘s $400โฃ billion valuation โand cemented itsโ position asโ the world’sโค most highly valued private company.
Analysts and economistsโค attributeโ this preference forโค remaining private to the regulatory burdens and short-term pressuresโค associated with public markets. However,โค the increasingโ availability of capitalโ from sources like sovereign wealthโ 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 โฃgrown by over 15% annually over theโข past decade, reaching over โ$12 trillion, according โคto data from preqin. projections indicate this figure could double to approximately $25 trillion within โthe next decade.
Ventureโฃ capital assets under management in โNorth America โare โalso expected to increase, rising from โ$1.36 trillion at theโ beginning of 2025 to $1.8 trillionโ inโข 2029, asโค reportedโ by PitchBook.
“One of the main reasons for going public โฃis to raise โcapital,” explained professor Jay Ritter. “Now there areโข a lot โof good alternatives toโ raising capital without going public.”
Ritter also highlighted the emergence of digitalโค marketplaces like Forge global and โEquityZen, โwhich offer employees liquidity โขfor their equity holdings withoutโ requiring an initial public offering (IPO).
Theโฃ experience โof Klarna,โฃ a Swedish fintech startup founded 20 years ago, illustrates the volatilityโค of the pre-IPO landscape.Valued at $45.6 billionโ in 2021 following a funding roundโ led by SoftBank, its valuation plummeted to $6.7 billion in 2022 as the “buy now, pay later” market cooled. Klarnaโ receivedโค funding from investors including Sequoia Capital, IVP, atomico, GIC, and Heartland, โฃthe family office of Danish billionaire Anders Holch Povlsen, before going โคpublic last โmonth.โฃ Currently, Klarna’s market capitalization stands at $15 billion.
While private equity and venture capital firms โขoften argue that the most rapid growth and highest returns occur โin a startup’s early stages,diminishing by the timeโ of an IPO,Ritter suggests the evidence is more nuanced. โ Although private โequity and venture capital have historicallyโข outperformed โpublic markets,he believes the recent influx of capital into alternative investments and the high prices paidโค for assets could signal a shift.
“Money flows into an asset โฃclass asโค long as there are abnormal returns,” Ritterโ said.โ “Butโค soโ much money has poured in, I don’t expectโ there to be abnormal returns in theโ future.”