Chapter 2
Overview of Historical Trends
Introduction
Through private equity (PE) has garnered significant attention in recent times, various forms of organized PE have been present for decades. This chapter provides the reader with a brief history of PE, along with historical data pertaining to VC and buyout funds. Fundraising, portfolio company investment, and net returns to limited partners (LPs) are explored on numerous dimensions, including fund size, fund stage, and portfolio company industry. Secondary funds are also examined, including the rise of this market circa 2008 and subsequent return to historical fundraising levels.
A Brief History of Private Equity
Forms of PE finance are almost as old as history itself; however, in the United States, PE finance—specifically, venture capital (VC)—can largely trace its roots back to private financings employed by the railroad and textile mills in the nineteenth century. However, with the help of the federal government, VC largely jumped onto the investment scene after the turn of the twentieth century: The events of World War I were the setting for the beginnings of VC in the United States.
The War Finance Corporation (WFC), created by Congress on April 5, 1918, was charged with providing credit to essential war industries, largely through loans granted to banks. In its six months of wartime existence, the WFC advanced over $71 million. With its charter expanded during the subsequent peacetime, ...
