The information technology sector has, mainly thanks to the venture capital industry in the US, been one of the fastest growing areas of private equity. Given the recent trend for extremely high company valuations seen in the information technology sector, as exemplified by ‘Unicorns’ valued at over $1bn, the industry continues to grow and attract a lot of attention from those looking for a jackpot investment.
Preqin’s Fund Manager Profiles online service currently lists 347 active private equity firms that are solely focused on the information technology sector. The majority of these are venture capital firms: 311 cite venture capital as their main investment strategy, compared with just 24 buyout and growth firms. In the last 10 years, these venture capital firms have raised an aggregate $12bn in capital, whereas buyout and growth firms have collected only a fraction of that amount over the same period ($1.5bn). In addition, Preqin is aware of a further 4,815 firms that consider investment opportunities in the information technology sector as part of a wider industry focus.
Geographically, Preqin’s data shows that despite attempts by governments around the world to incentivize the development of, and investment in, information technology businesses, US-based private equity firms remain dominant in raising capital to be invested in the information technology sector. More than half of solely information technology-focused firms are headquartered in the US, with 196 houses located here. Other countries are home to negligible numbers of firms in comparison: 11 are headquartered in the UK and 10 each are located in Australia and Germany. Similarly, US-based firms have raised $5.4bn in the last 10 years, whereas Germany-based firms have raised $565mn, UK-based firms $165mn and Australia-based firms just $56mn.
The importance of US-based private equity firms for the information technology sector is further highlighted by Preqin’s data on funds in market. There are currently 351 funds on the fundraising trail focused on IT investments, targeting an aggregate $47bn. Of those funds, 218 are being raised by US-based fund managers, collectively targeting $27bn. In comparison, China-based firms are currently targeting only a fraction of this capital to invest in the IT industry, just $5bn. Almost a third of this total is being raised by a single fund, the SummitView IC Industry Fund, which is targeting $1.6bn to invest globally in semiconductor technology.