Survey: Increased Demand for Capital in 2015
All ten investment stakeholder sectors involved in private capital markets, including bankers, private equity investors, venture capitalists and brokers, expect to see an increased demand for capital next year, but business owners remain challenged by lack of access to funding, according to research released today from Pepperdine University Graziadio School of Business and Management.
According to the 2015 Pepperdine Private Capital Markets Project (PPCMP) Survey Report, investors anticipate improved business conditions and many expect to close more deals next year than in 2014. Forty-one percent of respondents to the Investment Banker survey expect to close six or more deals in the next 12 months.
Despite optimism from lenders, many privately held businesses report that they lack the financial backing needed to grow. Nearly 89% of 681 privately-held businesses that responded to the survey report having the enthusiasm to execute growth strategies, but only 52% report having the necessary financial resources to successfully execute growth strategies. Approximately 47% of respondents reported that they were seeking bank business loans or business credit card financing as a source of funding, followed by friends and family (13%). Of all financing options, bank loans emerged as the financing source with highest “willingness” for small business to use, followed by grants and credit unions.
“Last year’s frothy private capital markets appear to have calmed down a bit,” said Craig R. Everett, PhD, assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “Lending standards for senior debt seem to have tightened somewhat and private equity deal multiples have pulled back from a year ago. Mezzanine debt is the only capital category that appears to be continuing to increase its appetite for risk.”
This year’s PPCMP survey, deployed in October 2014, specifically examined the behavior of senior lenders, asset-based lenders, mezzanine funds, private equity groups, venture capital firms, angel investors, privately-held businesses, investment bankers, business brokers, limited partners, and business appraisers. The Pepperdine PCOC survey investigated, for each private capital market segment, the important benchmarks that must be met in order to qualify for capital, how much capital is typically accessible, what the required returns are for extending capital in today’s economic environment, and outlooks on demand for various capital types, interest rates, and the economy in general.
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