The Pepperdine 2014 Capital Markets Report has been released. This report summarizes the Pepperdine private cost of capital survey (PCOC), which explores 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 PCOC examines, for each private capital market segment, the benchmarks to qualify for capital, the level of capital that is usually accessible, required rates of return on capital and the outlook on demand for different capital types, interest rates, and the economic outlook.
The data indicates that loans have the lowest average rates; angel investors have the highest average rates. Moreover, as the loan or investment size increases, the cost of capital decreases. The median required rate of return range for each type of capital, is as follows:
|Banks||3.5% - 5.5%|
|Asset-Based Lending||6.1% - 8.3%|
|Mezzanine||8.5% - 21.0%|
|PEG||19.2% - 28.3%|
|Venture Capital||22.5% - 28.0%|
|Angel||25.0% - 30.0%|
Some other interesting highlights include:
- 65% of privately-held businesses surveyed think that growth opportunities will increase over the next twelve months.
- Slightly more than half of the 951 businesses surveyed state that they plan to hire more employees over the next twelve months.
- For businesses that plan to hire, sales and marketing skills are the most sought after skills, followed by skilled labor and service/customer service.
- Almost all industry sectors in the private capital markets stated that economic uncertainty is the biggest current or emerging issue facing privately-held companies. (Uncertainty has certainly pervaded the headlines since the 2008 financial crises, including the federal budget, Obamacare, taxes, regulations and the duration of low interest rates.) The result of all this uncertainty is reduced access to capital, as well as a slowdown in business investment, hiring and consumer spending.
- The top reasons for deals not closing were a valuation gap, unreasonable seller or buyer demand, economic uncertainty and insufficient cash flow.
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