Five Insights on How Fund Size Is Influencing Private Equity and Venture Capital response to COVID-19

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December 2, 2020

In April 2020, SourceScrub surveyed Private Equity and Venture Capital firms on the short- and long- term impact of the COVID-19 crisis on their operations, investment strategy, and outlook. Survey respondents included small funds managing less than $100 million, intermediate funds managing $100 million to $1 billion, and large funds managing more than $1 billion. Interestingly, a fund’s response to this crisis was correlated to its fund size, with larger funds operating and thinking very differently than smaller funds.

#1 Larger Funds More Focused on Portfolio Management, Smaller Funds More Focused on Deal Execution and Sourcing

Survey data showed that intermediate and large funds were devoting 42% – 47% of their time to portfolio management.

In contrast, small funds were spending less than a quarter of their time on portfolio management, and more than half their time on new deal sourcing and deal execution. Small funds (sub-$100 million) are spending 50% more time on deal execution and new deal sourcing than the $1 billion plus clique. Looking ahead to after the COVID-19 crisis subsides, small funds expect to spend significantly more time on new deal sourcing than larger firms. Additionally, managers of sub-$500 million funds plan to dedicate a lot more time to investor relations and capital raising than their larger counterparts. This could be because larger Private Equity and Venture Capital funds invest in bigger companies (with more COVID-related complexities to manage), and have a larger number of portfolio companies to manage. Additionally, larger funds tend to pour a lot more capital into each deal, making it all the more important that they manage fund exposure.

Private Equity Venture Capital Coronavirus Covid-19 firm time

#2 Largest Funds Have the most Dry Powder

Surprisingly, 61% of the large firms ($1+ billion in AUM) surveyed had only deployed a quarter of their fund’s capital, and only 6% of the large funds had deployed over half of their committed capital. As a result, large Private Equity and Venture Capital funds are sitting on the biggest war chests, with massive amounts of undeployed capital.  

By comparison, on average, 35% of the small and intermediate funds had deployed over half of their fund capital.

Private Equity Venture Capital Coronavirus Covid-19 fund deployed by firm type

#3 Post-COVID, Smallest and Largest Funds Plan to Get More Aggressive

After the Coronavirus pandemic subsides, the smallest and largest funds plan to get far more aggressive in deploying capital than intermediate firms in the $100 million – $1 billion fund size.  

Private Equity Venture Capital Coronavirus Covid-19 deploying capital

In light of #2 above, it comes as no surprise that large funds, with mountains of uninvested capital, plan to get more aggressive after this crisis subsides.

#4 Larger Funds To Accelerate Deals in Q3 and Q4 2020

Larger funds ($500+ million) expect to mostly sit out Q2. Thereafter, 85% of them expect to sharply accelerate capital deployment in Q3 and Q4 2020. Smaller funds expect a slower level of deal acceleration in Q3 and Q4, and expect deals to spill over into 2021 to a greater extent than the larger players.

Private Equity Venture Capital Coronavirus Covid-19

#5 Larger Funds Changing Investment Thesis Post-COVID

When asked if COVID-19 would change their investment thesis, 72% of the large Private Equity and Venture Capital firms ($1+ billion fund) said this crisis has changed, or will change, their investment thesis. Yet, only half of the small and intermediate fund respondents expect this crisis to have an impact on their investment strategies going forward.  

Insights from SourceScrub’s survey indicate that fund size strongly influences how Private Equity and Venture Capital firms are responding to the Coronavirus pandemic. With growing COVID-19 deaths in the U.S., larger funds appear to be in more of a crisis management mode in Q2 2020 than smaller firms. Once this crisis subsides, expect larger funds to more aggressively pursue deals in Q3 and Q4 2020. Moreover, this crisis may have a greater impact on the investment theses of large firms than their smaller competitors.

Private Equity Venture Capital Coronavirus Covid-19

Frazier Miller


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