Early entrance of late-stage investors here to stay

Late-stage investors want to secure their seats at high growth companies earlier, according to Elisabeth Lind of Cambridge Associates.

Large investment firms such as Tiger Global have made waves by leading growth equity rounds. And now, more late-stage investors are pushing earlier in the cycle, a trend that Cambridge Associates believes will only continue.

Elisabeth Lind, managing director in the firm’s private client practice, said private equity and late-stage investors going in earlier partly reflects a changing view about investing in growing companies.

“It’s not surprising that in the business of innovation, it will continue to change and innovate itself,” Lind told Venture Capital Journal. “So there will be a constant evolvement of how these companies are being funded.”

Data from PitchBook and the National Venture Capital Association show that Lind’s future vision is not far off: late-stage investment went over $100 billion in the first half of the year, matching 2020’s full-year figures. During the first six months of 2021 there was $109.4 billion in late-stage investment, compared with $109.8 billion for the whole of 2020. PitchBook reported that 2021’s full-year figure will surpass 2020’s and set a new record for late-stage venture deals.

Private equity has topped investment spending for the first half of the year, with at least two firms executing mega deals. Venture Capital Journal previously reported that Tiger Global led the global investments league table when it poured $26 billion into 143 rounds during H1. Coatue Management participated in 68 rounds for $12.9 billion in value over the same period.

Late-stage investors want a seat at the table while there is still an opportunity to achieve very high, venture-like returns at an earlier stage. Private equity firms, Lind said, believe they can guide start-ups to go public even earlier.

“Late-stage investors add a lot of value in terms of bridging a company to becoming public,” she said. “It’s a skill and there are not many VC investors that have that, so having somebody at the table who understands that can add a ton of value.”

Lind added that companies tend to stay private for longer while continuing to grow. She noted that in previous years, many private investors were frustrated at being shut out of high-growth companies. However, by participating in earlier rounds, private equity investors secure their IPO allocations much faster.

Lind said sky-high valuations had played a significant role in private equity firms’ interest in moving further up the investment cycle. She added that many late-stage investors only go early if they genuinely believe in the strong return potential.

“It’s not a zero-sum game,” she said. “It’s a growing pie and everyone can participate. I don’t see late-stage going earlier to be a big issue; they serve to play a different role in a company’s development.”