US-Based Early Stage Seed Investors in Private Equity – March 2015

by Brian Orlay

  • 06 Mar 2015
  • PE

Venture capital remains one of the most prominent strategies for accessing the private equity asset class, with 60% of investors tracked by Preqin’s Investor Intelligence online service expressing an interest in the strategy. There are many types of venture capital investments specializing in differing stages of the business cycle; however, early stage investments, which include seed and start-up vehicles, are among the most numerous types of venture capital vehicles to be raised by fund managers. Approximately 45% of all institutional investors that invest in private equity maintain a preference for early stage seed vehicles; the US hosts the most early stage seed investors in the world: approximately 47% of US-based private equity investors have exposure to the fund type.

Early stage seed investments are made when a company or an idea is in its initial stages, and is most likely in development. Traditionally, these investments are made by the founder or other small investors, but over time, the number of large institutional investors that have exposure to early stage seed investments has increased.

As shown in the chart above, foundations, endowment plans, private pension funds and public pension funds constitute the majority of US-based investors that have a preference for early stage seed vehicles. Early stage seed funds provide investment opportunities in new industries that may have not have existed in the past and provide opportunities to invest early in companies where there is potential for large returns. Silicon Valley, where there is a large base of start-up companies, is the reason California hosts the highest percentage of early stage seed investors in the US.

An example of a US-based LP that will be investing in early stage seed vehicles over the next 12 months is Kentucky Retirement Systems. The public pension fund is looking to commit between $140mn and $160mn to private equity, and a portion of that commitment will be set aside for early stage seed opportunities. Additionally, Kansas Public Employees’ Retirement System will be committing $350mn to private equity over the next 12 months, and a portion of those commitments will also be targeting early stage seed vehicles.

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