Private markets are bigger than you think

Private markets growth is often measured in terms of dollars flowing into funds and transactions. But these metrics don’t capture their true size.

It turns out that private markets — and venture-backed companies in particular — are worth more than typical measures suggest and are growing faster than public markets. This has implications for how they will be audited and regulated in the future.

To provide these results, PitchBook analysts estimated the total market capitalization of companies backed by private equity and venture capital, allowing for a direct comparison to publicly traded companies. The research was published in the latest issue of PitchBook Quantitative Perspectives Report.

Read more about our methodology below.

VC-backed companies have a combined market cap of between $2.9 trillion and $3.7 trillion — about the same as companies backed by PE buyout and growth firms. This assessment may seem counterintuitive given that PE firms raise larger funds and do larger deals than VC firms. And measured by the net asset value of the funds across all strategies, PE appears to be much larger than VC.

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However, VC investors invest in companies on a much smaller scale. After adjusting for this lower ownership, the market capitalization of VC-backed companies is quite substantial.

Two other factors are responsible for VC’s high market cap: lots of companies and high valuation multiples. About 36,000 companies in the US are VC-backed, versus nearly 16,000 PE buyout and growth-backed organizations and 4,805 public companies, PitchBook data shows. Rising valuations fueled by higher growth expectations are also driving up the collective value of VC-backed companies. Unicorns alone are worth $2.3 trillion combined.

In recent years, the market capitalization of PE and VC-backed companies has grown faster than that of their public peers. Analysts found that the median estimated market cap for these private strategies in 2017 was 8.1% of the value of the public markets. By 2021 it was 12.4%.

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This growth has fueled a debate about allowing more retail investors access to private funds.

“As private markets get larger, they are being studied more closely,” said Zane Carmean, a senior quantitative analyst at PitchBook who led the research. “As private markets take more and more shares relative to public markets, it reinforces the argument that mom and pop investors don’t have access.”

The most recent development in efforts to expand access to private markets has been the introduction of a VC fund for private investors on the Titan platform. Some of the largest private equity investors have also made it clear that they view individual investors as one Cornerstone for future growth.

The SEC appears to be on board with this push, provided investor protection is in place. It follows more and more Transparency of private fund managersthe agency has also recommended expanding access to private markets.

Read the whole thing Q3 2022 Quantitative Perspectives Report


To estimate the market capitalization of private fund strategies, PitchBook analysts first calculated the net asset values ​​of all funds in three categories: VC, PE buyout and PE growth.

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The analysts then applied a share ownership assumption to create a series of market cap estimates. This participation is lowest in VC (20% to 25%) and highest in PE buyout (65% to 80%). A lower share ownership assumption results in a higher relative implied market capitalization. This multiplier effect is particularly large for VC funds. Investors own smaller stakes in startups, so the value of their funds relative to the company’s valuation is lower than in PE strategies.

The result is a rough estimate that doesn’t take into account that private funds often stick with portfolio companies after they go public. Therefore, a portion of market cap estimates represent the value of formerly VC or PE backed companies that have since gone public.

Featured image by Thampapon/Shutterstock

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