Whileevolving market conditions are shaping investment decisions in high-growth pre-IPO and private companies, financial performance remains key
Governance and cybersecurity are increasingly critical in investment strategies
Investment priorities differ among investors with private equity examining profitability, venture capitalists favoring unique value propositions and asset managers prizing technological innovation
New York, New York–(Newsfile Corp. – April 17, 2025) – In a rapidly changing market landscape, private market investors are transforming their investment strategies and priorities while navigating new risks and opportunities driven by technological innovations, according to KPMG Private Markets Pulse: Private market investment priorities, a new study released by KPMG LLP, the US audit, tax and advisory firm.
KPMG US surveyed more than 300 US private equity (PE), asset management, venture capital (VC) and family office investors across a variety of industries and sectors to capture investor sentiment around innovation cycles, new growth fronts and evolving definitions of “value” in the private markets.
“Private market investors are prioritizing a combination of financial performance metrics and scalability potential when assessing investment opportunities,” said Tarek Ebeid, KPMG Private Leader and Partner in Charge – Northern California Audit Practice, KPMG US. “They remain cautious about risks, placing increasing value on comprehensive reporting and governance measures. Founders seeking funding should articulate their company’s strengths, future potential and comprehensive risk management strategies with clarity and transparency. This approach will help attract investment, maintain investor confidence and foster trust.”
Investors are increasingly prioritizing companies that demonstrate a robust track record of innovation and a proactive approach to adopting emerging technologies underscoring the importance of staying ahead of technological curves to maintain competitive advantage and capitalize on new market opportunities. They also expect AI to transform nearly every facet of portfolio companies within the next year, with the greatest impact on data analytics and business intelligence (52%), cybersecurity (52%) and finance and accounting (50%).
As technology adoption increases, so do the risks associated with capturing and analyzing large volumes of data. Eighty-one percent of investors say cybersecurity and data reporting measures in investment decisions have increased in importance over the past year, consistent with a prior KPMG survey of private companies in which 66% of financial function leaders cite cybersecurity as the most relevant area of reporting beyond financial statements. As companies increasingly rely on digital infrastructure, robust cybersecurity measures are essential to safeguard against potential threats and ensure long-term stability.
Private market investors are also recognizing that long-term resilience and sustainable growth are closely linked to strong governance, ethical practices and social responsibility. While financial performance, future projections and return on investment (ROI) remain the top considerations, governance and non-financial reporting are increasingly critical to driving investor confidence.
Private equity investors are more focused on pricing and profitability (63%).
Venture capitalists place more importance on evaluating a company’s unique value proposition (56%)
Asset managers are prioritizing the evaluation of a company’s technological capabilities and innovation pipeline (56%).
Seventy-seven percent of investors report an increased focus on governance over the past 18 months, emphasizing the importance of robust and effective governance in financial reporting for companies in mitigating risk associated with material financial misstatements and fraud. This not only enhances investor confidence but also builds trust with stakeholders and improves market reputation.
Key findings:
While traditional decision-making factors continue to dominate investment strategy, non-financial metrics are becoming increasingly important.
When evaluating investment opportunities, financial performance metrics (38%), ROI expectations (31%) and scalability potential (24%) are the most important factors.
62% evaluate investment opportunities with a balanced short-term and long-term focus on financial performance but are split on whether they place more importance on a company’s concept (38%) or a company’s founder(s) (31%).
49% say their financial risk tolerance is high when evaluating investment opportunities, while 42% cite moderate financial risk tolerance.
Financial and non-financial reporting:
Financial performance (55%), scalability potential (45%), market competitive landscape (37%) and cybersecurity/data protection measures (36%) are the most important reporting metrics.
Reflecting a broader trend towards responsible investing, 77% indicate that governance factors now hold greater weight in their decision-making process, while 63% say that sustainability and carbon emissions initiatives are more important in evaluating investment opportunities.
Investors view technology as both an industry disruptor and crucial driver of growth.
45% believe that technological advances will be the primary driver of economic growth over the next 18 months.
AI is expected to transform nearly every facet of portfolio companies within the next year, with the greatest impact in data analytics and business intelligence (52%), cybersecurity (52%) and finance and accounting functions (50%).
Investors expect significant investment activity across key tech sectors over the next 18 months, particularly in AI, machine learning and big data (63%), 5G and advanced connectivity (36%) and blockchain/cryptocurrency (33%).
65% of investors assess innovation and patent records as part of their due diligence, while 64% evaluate the adoption of emerging technologies to determine competitive positioning.
Four in ten say that the technology sector and tech adjacent industries are primed for disruption, including cybersecurity (29%), blockchain/cryptocurrency (24%) and energy/cleantech (23%).
Investors expect significant investment activity across key tech sectors over the next 18 months, particularly in AI, machine learning and big data (63%), 5G and advanced connectivity (36%) and blockchain/cryptocurrency (33%).
Private Equity and Venture Capital are most likely to cite technology as the most disruptive industry.
Investors are cautious about risks that could hinder economic growth.
Inflation (35%), interest rates (33%) and cybersecurity risk (27%) are the top risks investors monitor.
Investors are particularly wary of the risks associated with data breaches and cyber-attacks, with 81% saying cybersecurity and data protection reporting measures have increased in importance over the past year.
Nearly half (48%) of Private Equity investors note increased value in this area of reporting, likely due to higher levels of investment in financial services and fintech where data privacy risks are top-of-mind.
Designed to examine the multifaceted considerations that shape investment decisions in private companies, the KPMG study surveyed 301 institutional investors in the US who are decision makers in their company’s investment in private companies and work at companies with $500M+ in total assets under management across various verticals, including private equity (24%), asset management (42%), venture capital (30%) and family office (4%). The survey was fielded January 21 – February 7, 2025.
About KPMG LLP
KPMG LLP is the U.S. firm of the KPMG global organization of independent professional services firms providing audit, tax and advisory services. The KPMG global organization operates in 142 countries and territories and has more than 275,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
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