Performance of Private Companies - a year in review
25th February 2019
We recently partnered with Beauhurst to analyse the returns generated by investments into private UK companies.
We did this by creating a fantasy portfolio of every company raising equity investment in 2013 and evaluated their progress over the 6 years to the end of 2018.
Beauhurst collects valuations for all these companies, so we were able to monitor how these changed over time. We used fair value calculations to arrive at a value for the companies at the end of the observation period, based on their most recent pre-money valuation, their exit value, or a value of £0 if they’ve died.
How did the cohort perform?
The 1,229 companies were collectively valued at £5.93bn when they joined the cohort in 2013. By the end of 2018 they were worth £23.4bn: generating a compound annual return of 23.7%. But which companies in which sectors were delivering the best returns?
We took a closer look at three particular sectors; Automation, Life Sciences and Electronics. The companies in the Automation cohort performed the best, delivering a compound annual growth rate (CAGR) of 32.7%. Life Science companies performed just under the cohort as a whole, at 22.2%. Electronics also underperformed with returns of 18.4%.
How did other asset classes perform?
While some sectors clearly make better returns for investors than others, the return rates are high across the board. Other equities delivered more meagre growth by comparison over the same period. The FTSE100 grew by a CAGR of 2.2%, while AIM grew by a more lucrative 8.9% – although both of these figures exclude any dividends paid by these listed companies. Moreover, the trade-off for the growth in value of the private companies is the near absence of liquidity. With early-stage investing, the reward always has its risk.