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A few thoughts about the future of Private Equity and Venture Capital in France. A bit early to draw definitive path but this industry is going to be deeply changed by this crisis. Thread here what might happen 
https://abs.twimg.com/emoji/v2/... draggable="false" alt="⤵️" title="Arrow pointing rightwards then curving downwards" aria-label="Emoji: Arrow pointing rightwards then curving downwards"> ( @Milletolivier)
1/n This industry works on a simple basis : Limited Partners (LPs) pour large amount of money into funds managed by General Partners (GPs) for 10/12y periods. LPs expect returns (IRR) c. 8 % to > 50 % depending of investment type (VC, dev cap, LBO)& usually invest is all segments
2/n LPs decide to provide money to GPs teams who have already proven their ability to provide returns i.e. their track record. The PE & VC customers are thus NOT the entrepreneurs but the LPS. And the GPs have 5/6y to invest the money...
3/n Last (important) detail : the LP money is delivered into the GPs funds just before each investment deal. When $500m VC is announced it’s a commitment of $500m, not real cash...
4/n Now that the shit has bitten hardly the fan, it spreads all over and consequences are different depending on the private equity class...
5/n For the VC industry, it is all about growth. It’s frozen for a long period from the seed stage to the Serie B stage. GPs will focus on the most promising and resilient teams. The VC growth is less at risk but real concerns about the valuations will occur...
6/n For the Development Capital segment, it is all about how SMBs will adapt to the curent economic situation. Here too, the GPs will have to make choices on which ones to support. The future new investments will benefit from better valuations...
7/n The LBO industry is the most exposed segment : large compagnies, leveraged deals up to 6x EBITDA, industry segments facing directly the crisis. Strong debt negociations to appear in the next months and valuation to drop hardly...
8/n In front of the apocalyptic situation, let’s imagine what could be LPs reactions. Essentially based on their rationale and expected returns to protect their own money...
9/n First the LPs will arbitrate : choose which GPs will benefit from their support. Even if commitments have been signed, the context has changed. They will keep their money and make sure their money is invested wisely by the GPs. Consequence ? Fund size reduction for the GPs..
10/n Second, the LPs will partition : require from the GPs to isolate the remaining portfolio compagnies and ask to focus exclusively on a way to return their money... Cash is king
11/n Third, LPs, full of cash, will look around for new, but experienced GPs which can turn this situation into a opportunity to acquire and invest in promising industry sectors. The return of the experienced silver back gorilla VC, especially if the GP has no portfolio to manage
12/12 Reminder : best returns have been made in Fr 5/6 years after the 2000 et the 2008 crisis, by new GP teams… (ping @JeanRognetta)
