The private equity market in the USA: Lessons from volatility

Abstract

Since the nadir of the early 1990s, the angel and venture capital markets began a rapid recovery followed by a marked decline. These recent market gyrations offer insights into the private equity industry. During the rise, angel and venture capital investments soared, accompanied by rising deal valuations. For the first time since the study of angels was initiated, venture capital investments exceed, in total dollars, the amount of angel investments, although the number of deals remained larger in the angel market. However, unsustainable trends inevitably return to normalcy and these changes have resulted in a restructuring of the market. Angels are reasserting their fundamental role as the major source of seed capital for high growth entrepreneurial ventures. This paper examines the rise and the downturn in the private equity market, and identifies some of the causes for each. Current and future market trends are also identified.