IVCA Feature:  Bon French "The State of Private Equity and Venture Markets" - The Recap

May 23, 2018

Private equity firms need to do a better job of reporting the work they do as job creators by sharing their own success stories. And long-term economic prospects are good, despite strong indicators of inflationary water ahead.
Also, data and numbers crunching will only take you so far. Sometimes, when thinking about backing a company, you have to close all those spreadsheet files and “get on a plane.”
These were some of the take-aways from a detail-rich presentation for IVCA members from Adams Street Partners Chairman T. Bondurant “Bon” French. The sold-out event, “The State of Private Equity and Venture Markets,” was sponsored by Ropes & Gray and CIBC Bank US.
A founding member of the IVCA, French’s Adams Street Partners was also among the pioneers in what is now the booming venture capital sector. He started his talk by recalling the days when “we had to spell it,” meaning that he and other people raising funds – among them Chicago VC legend Stanley Golder – had to explain what the term venture capital meant. Even as he praised the maturity of the private equity and venture capital industries, now rich with analysts and sophisticated numbers crunchers, French said the importance of personal relationships – of getting to know the people you were investing in - cannot be understated.
“Back then we had no real data,” he said. “A lot of time I have to tell our analysts to close the laptops, get out of the data room and get on a plane.”
That’s not to say French doesn’t value data. His presentation was replete with it, including a breakdown of individualized rates of return. It showed a 20-year rate of return of 12.2% for all private equity, including US venture, buyout and private equity sectors, as well as Asian and European private equity. This is nearly double the 7.2% 20-year rate for the S&P 500.
These strong returns, French noted, “have encouraged fundraising.” And the amount of “dry powder” – money on hand to make VC and private equity investments – is more than $1 trillion. Indeed, fundraising in 2017 eclipsed that of 2007 and 2008, the boom years before the global financial crisis of 2009, French said.
But just as the returns are strong, French noted that “there are signs inflation is coming back.” Public market capitalization as a percentage of gross domestic product is now approaching 150%, the same levels seen in both the tech bubble of the late 90s, and the global financial crisis of 2009, he said.
French was asked about this, with a questioner noting that some of the data he presented indicates we may be in the midst of another bubble. He answered with the calm of an investor who takes the long view.
“I read the Wall Street Journal every day,” he said. “But I don’t get wrapped up in what’s going to happen tomorrow.”
Among more than 40 slides he presented, French flagged one as his favorite. It showed private US Buyout calls and distributions over time, notably that the balance between them has shifted. Calls outpaced distributions every year from 2000 to 2009, the depth of the global financial crisis. Since then distributions have significantly outpaced calls.
“The reality in liquidity is actually spectacular,” he said. “But don’t tell the academics this.”
French also noted that the pace of innovation continues to be strong. Non-tech companies are the big buyers of new technology, he said, and innovation is wide-ranging. Companies are now “investing in four or five tech waves at once,” he said. “Historically it has been one wave at a time.”
Here, however, he acknowledged that liquidity is the next challenge, namely “how do we realize all these fantastic gains that are sitting on the books?”
French wrapped up his talk by urging attendees to be more forthcoming with the kind of reporting and data that is widespread for publicly traded companies.
“I’d like to see more reporting (of job creation data),” he said. “There’s a great story here. It’s a real story and it happens to be true.”

- By John Carpenter