Private equity firms have become big players in the venture ecosystem - Business Insider

Ryan Cohen sold Chewy, the online pet supply vendor he founded, to PetSmart for $3.35 billion in 2017 in the largest private equity-related acquisition of a venture-backed startup in the last three years.simply click here to claim your deal and get access to all exclusive Business Insider PRIME content.Although most startups that are acquired are still purchased by other independent companies, a growing number and proportion are being snatched up by private equity firms.

The growing influence of private equity on the startup market has "really reshaped the industry," said Wylie Fernyhough, a senior private equity analyst at PitchBook. Last year, for example, of the 934 startups that had some kind of exit event, 853 — about 91% — were acquired either by another company or as part of a private equity-related deal, according to PitchBook. That rate has been relatively steady over the last 18 years.

"I think it's a trend that's going to keep growing," said Lanham Napier, the cofounder of startup investment firm BuildGroup. "You can sell early stage companies to PE-backed platforms," said Dan Malven, a managing director at 4490 Ventures. "I think we're going to see more and more of that."Part of what's driven the surge of private-equity buyouts — and acquisitions overall — is that fewer and fewer venture-backed companies are going public. That's a

"The public market has evolved to a point where it's not that you couldn't have these companies go public, but there are significant regulatory costs that you can avoid if you stay private," said Robert Hendershott, an associate finance professor at Santa Clara University's Leavey School of Business. "Private equity is a natural way to give someone an exit.

It used to be that private equity firms acted kind of like bottom feeders in the startup market, paying relatively small amounts for firms that had few other options and focusing on the cash flow those companies could generate for them. But that's no longer the case. Private equity firms — particularly the tech-focused ones — are increasingly looking at companies that can offer revenue growth and they're often willing to pay top dollar for them, the experts said.

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