Why is Private Equity looking more and more like Venture Capital?

Over the past handful of days, three of the biggest names in private equity have led investments worth a combined $170 million that don't look very much like private equity at all. Instead, KKRWarburg Pincus and TPG Capital are continuing to make more and more forays into the world of venture capital.

KKR announced on Monday that it has led a $57 million Series B investment in Clarify Health Solutions, a developer of tech designed to guide healthcare for physicians, health systems and patients. The startup raised $5 million at a $22.8 million valuation a little less than two years ago. The same day, fintech startup Facet Wealth announced a $33 million Series A led by Warburg Pincus, with additional funding from Slow Ventures. The company makes financial planning software for households and other smaller clients. 

Those two deals came a few days after TPG led an $80 million minority investment in open-source governance startup Sonatype, with support from fellow backers AccelGoldman Sachs and Hummer Winblad

For all three firms, the deals are representative of a newfound interest in VC—a trend we covered earlier this summer with regard to KKR. At each of Warburg Pincus, KKR and TPG, the amount of completed venture investments around the globe began to spike upward about five years ago, per PitchBook data: 

With 2018 a little more than two-thirds complete, TPG Capital and its TPG Growthaffiliate appear to be headed for a new decade-high in VC deals, and the other two firms aren't far off pace. 

It's notable, too, that the past nine months have seen these firms participate in much larger VC investments than ever before. Since the beginning of the year, Warburg Pincus has participated in a $14 billion investment in Ant Financial and a funding worth more than $1 billion in Go-Jek. KKR took part in that same Go-Jek funding and also played a role in a $1.7 billion round for Lyft

These investments say something about changing deal preferences at the firms, but they also say something about the state of the VC market. Highly valued startups are staying private for longer than ever before, and in turn raising larger rounds to account for the absence of public funding. And when the VC industry includes more mature companies seeking larger financial commitments, the targets start to look more and more familiar to investors that cut their teeth in private equity.  - PitchBook

Sebastian Sharpe