There are many reasons to invest in private equity. First and foremost, the private markets have far outperformed the public markets. Over the past 25 years, the average internal rate of return (IRR) for the top quartile of VC funds has ranged around 25% according to the Cambridge Associates Venture Capital Index. Over the same period, the S&P 500 returned around 10% per year. On a fundamental level, these investments are generally riskier and therefore demand higher returns on investment.
In today’s market, companies are staying private for much longer than they used to. The median age for tech companies going public in 2000 was 4-5 years compared with 12 years in 2018. The returns generated by these companies during their growth phase are only achievable by accessing the private share market. As an investor, this makes it essential that you gain an earlier entry point to these companies by investing in private company shares.