TLDR:
Key Points:
- Liquidity in private equity is down by 50%, creating a liquidity crunch in the market.
- Many are being forced to take out loans to generate cash due to the decrease in exits.
In a recent article by Jason Lemkin, the Wall Street Journal highlighted the liquidity crunch in private equity, with cash from exits down significantly. The historical average of the past 10 years has seen a 50% decrease in liquidity, leading to many in the industry resorting to taking out loans to generate cash.
The decrease in liquidity can be attributed to the excessive amount of exits in 2021, which saw an IPO almost every week. While venture capital and private equity are built to be patient over a long period, they rely on a steady stream of returns each year to continue funding operations. However, the current low liquidity levels are creating a strain.
Even though the market is expected to bounce back, founders need to understand the challenges they may face in securing funding when liquidity is at a decade-low in private investments. The impact of this liquidity crisis extends to the endless treat of venture capital available for startups, making it difficult for new ventures to secure investment.
While it is anticipated that a string of IPOs in 2025 may improve liquidity in the market, the current scenario presents significant challenges for both investors and startups alike. Understanding the stresses at the input levels for funding is crucial for founders looking to navigate the current landscape in private equity.
