The equity gap, the difference between the amount of (risk) capital that would be invested under conditions of well-informed and competitive markets and the amount of capital actually invested, covers both startups and ventures moving beyond startup to the establishment and early growth phase. We provide estimates for the size of the equity gap for firms facing later stage financing issues, the second equity gap. This ‘second’ equity gap relates to a second so-called ‘valley of death’ in financing the growth phase, and is particularly pertinent for knowledge-intensive (KI) firms. We utilize a unique panel database covering the population of limited companies, which includes 2852 VC backed companies and 4048 deals. Using propensity scoring methods and multivariate models determining investment demand we screen the corporate population for potential VC investments and estimate the size of the equity gap in total and the KI firms that face, potentially, the second equity gap as a subset of our total estimates.

We study the performance of PE-backed companies during the COVID-19 pandemic. Our findings suggest that, on average, PE-backed firms were more resilient compared to closely matched industry peers during the pandemic. However, this outperformance is of a smaller magnitude than during the pre-pandemic non-crisis period, suggesting that the outperformance is driven by investor selection of target firms ex ante, rather than active support mechanisms. The outperformance during the pandemic is found to be insignificant among firms which were the most vulnerable at the onset of the pandemic, and firms in the most exposed industries. These more vulnerable firms appear to have been less active in obtaining additional financing during the pandemic, and consequently, suffered a significantly higher incidence of distress. However, non-PE-backed firms in distress had a higher incidence of liquidation, while PE-owned firms more often negotiated formally with creditors to continue trading. Our analysis shines light on the role of PE investors during a large, exogenous shock, and suggests that, in the case of the pandemic, their adept target selection may help to explain the outperformance more so than their actions to protect vulnerable firms in a crisis.

We assess the recent economic and financial performance of U.K. private equity (PE) backed buyouts. Our empirical evidence, which is based on thousands of transactions, reveals that PE-backed buyouts achieved superior economic and financial performance in the period before and during the recent global recession, relative to comparable firms that did not experience such transactions. Our regression results imply positive differentials of 5–15% in productivity and approximately 3–5% in profitability for buyout firms, relative to non-buyout firms. Another key finding is that revenue and employment growth for PE- backed firms were positive during the sample period.