The VC Industry Gets Hit by Bank Blowback

While I hesitate to believe that yesterday’s ill-described changes to banking regulations will stand as stated, in their current incarnation they would be bad for venture capital. The proposed regulations would prevents banks from "owning, investing in or sponsoring" private equity (a category that broadly includes venture capital).

How big are banks as investors in private equity? From a Preqin release this morning:

  • U.S. banks have raised 60 funds since 2006, with a total value of over $80bn.
  • 18 new private equity funds are being raised seeking an aggregate $18bn.
  • Banks have $50bn in uninvested PE capital
  • The most prolific PE-investing banks are Goldman Sachs, Credit Suisse, Morgan Stanley and
  • Banks account for 5% of investors in the US by number, and represent around 9% of the capital invested in the asset class.

The change could drive more shrinkage in the troubled asset class — which I have called for and is overdue — but let’s not go too far with this.