Private equity was born in the United States 60 years ago. While the French are gradually discovering this asset class, the Americans have been familiar with it for decades, devoting on average 20% of their investments to this sector,” says Frédéric Stolar, co-founder and managing partner of the Franco-Swiss private equity firm Altaroc.
Private equity provides funds to high-growth companies, helping them to expand, internationalise, restructure, digitise and finance innovation.
Silicon Valley and private equity
In 1946, Georges Doriot, a French expatriate in the United States and professor at MIT, founded the ARD (American Research and Development Corporation) investment fund. This fund was designed to invest in innovative companies, particularly in the electronics sector, which was booming at the time (e.g. Technicolor and Digital Equipment Corporation).
By investing in Digital Equipment Corporation, Doriot secured major gains: in just a few years, the value of the fund increased by 6,000 times the initial investment, with an annual return of 100%. In the 1970s, Doriot set up an ARD subsidiary in France, which met with limited success due to the economic crisis.
Technological growth despite the crises
In 1963, US President Kennedy decided to invest heavily in space exploration, culminating in the moon landing in 1969. However, after the Apollo missions, budgets were cut considerably. As a result, many engineers and technicians lost their jobs, leading to the creation of companies such as Intel, Motorola and AMD.
Investors moved from the East Coast to California and set up new investment funds, giving birth to Silicon Valley. Apple, Microsoft, Cisco and many other technology giants followed suit. American universities such as Stanford have funded technology projects, including those by Hewlett and Packard students. They continue to invest billions of dollars a year in private equity.
Expansion into new sectors
Silicon Valley has rapidly become a centre of innovation. Electronics was followed by sectors such as biotechnology, software, the internet, artificial intelligence and autonomous driving. These developments required more financing, which led to the emergence of private equity and venture capital companies such as Sequoia.
In 1976, KKR was founded, the first private equity fund to specialise in acquisitions.
Competition and growth in the 1980s and 1990s
The 1980s and 1990s saw an increase in transactions and players in the United States, making the sector competitive. These decades were marked by the development of leveraged buyouts (LBOs), where loans were financed by large investors such as pension funds and wealthy families. In France, venture capital developed during this period, thanks in particular to business angels and the creation of FCPI funds in the 1990s. FCPIs raise funds from different types of investors.
The 2000s and the boom in company takeovers
In the 2000s, buyouts were encouraged by low interest rates and the introduction of the Sarbanes-Oxley Act, which aimed to make US companies more transparent. Between 2003 and 2006, buyout activity in the United States increased eighteen-fold, reaching $375 billion. Europe accounted for 15% of the total volume of private equity deals. In 2007, France ranked third in the world in terms of amounts invested.
