In a recent blog post, we examined some aspects of the private equity industry in the state of Massachusetts. Following on from this, I thought it would be interesting to look into some fund manager investment preferences.
Venture firms based in Massachusetts, which account for 58% of fund managers in the region, typically seek to make investments of between $4 million to $14 million in companies meeting investment criteria. As would be expected, buyout firms based in Massachusetts, which account for 30% of fund managers in the region, seek to make larger investments in target companies, with a typical targeted equity investment size of between $15 million to $ 135 million per transaction.
Shareholding preferences in the Bay State also differ between buyout and venture firms, with buyout firms favouring a controlling interest in portfolio companies, and venture firms typically seeking minority stakes. 52% of buyout firms in the region seek a controlling interest in investments, with 22% only considering controlling stakes and 30% preferring controlling stakes but open to other opportunities. Only 15% of buyout firms in the region actively seek minority shares.
Conversely, 55% of venture capital fund managers based in Massachusetts seek minority positions in investments, with 25% explicitly seeking minority investments and 30% preferring minority stakes but also open to other stakes. In addition, only 10% of venture firms in the region seek a controlling interest in investments.
Interestingly, 33% of buyout firms and 35% of venture firms in the region have no preference in investment stakes, and will consider both controlling and minority shares in a company.
The results of this investigation show that the investment preferences of fund managers in Massachusetts are characteristic of private equity fund managers across the globe. Buyout firms generally seek larger, controlling investments in companies whilst venture firms typically seek smaller, minority positions.
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