Finding opportunities in private markets

Public and private markets have converged in recent decades: The number of US‑listed public companies fell from more than 8,000 in the mid‑1990s to approximately 4,000 in 2024. Over the same period, the number of active unicorns (private companies with USD 1 billion+ valuations) grew approximately 14x (from around 100 in 2014 to 1,463 in 2024), with 183 new unicorns created, on average, each year. Companies are growing faster and remaining private for longer, creating significantly more opportunities to invest in private markets.  

Private markets: why now? 

There are two key reasons why we believe now is a good time to invest in private markets: first, because private firms are increasingly finding they can achieve growth targets by staying private for longer, and second, because public markets have become very concentrated. 

1. Staying private for longer can enable firms to focus on growth  

Many companies are choosing to remain private longer to focus on long‑term growth initiatives without some of the burdens public companies face. There is also now considerably more capital available for these companies.  

Many are deciding that it is easier as a private company to grow and take market share from incumbents. They can take big swings (such as large acquisitions, aggressive go‑to‑market strategies that do not focus on near‑term profitability, and research and development spending to invest in product differentiation, etc.) without being subject to the impact on the daily share price movements. Similarly, remaining private allows companies to put off costly compliance requirements that come with being a public company and the expectations of short‑term financial targets.  

As of last year, the median age of a VC‑backed unicorn had reached 8.2 years − up from 5.9 in 2015. Furthermore, in 2024, 86 percent of US‑based companies generating USD 100 million+ in revenue in the last 12 months were private, and companies are now reaching this number faster in the age of artificial intelligence (AI).  

2. High concentration has squeezed alpha opportunities in public markets 

Asset managers have been navigating a challenging capital markets environment in which both indexes and returns have been dominated by the “Magnificent Seven” group of stocks (Microsoft, Amazon, Meta, Apple, Google, NVIDIA, and Tesla). Investors are increasingly looking to generate alpha and diversify away from the Magnificent Seven, and private markets offer an attractive way of pursuing this. According to FS Investments, as of December 31, 2023, PE had outperformed the S&P 500 on a 5‑, 10‑, 15‑, and 20‑year basis. 

Late‑stage/growth equity investing: how does it differ from public markets? 

We believe that late‑stage venture/growth equity investing is particularly suited to the current environment as it offers access to opportunities arising from ongoing technological developments. These opportunities divide broadly into two types: category leaders and “blue ocean” companies. 

• Category leaders 

Late‑stage venture/growth equity investing offers access to companies that appear poised to fundamentally change the way a product or service class operates by redefining customer experiences through technology. Numerous such companies have emerged in recent years. Databricks and VAST Data, for example, are both drastically reimagining modern data infrastructure and storage in the age of AI in a world where it has become part of every organization. 

• Blue ocean opportunities  

Private markets also give investors access to rare “blue ocean” companies. While category disruptors take market share from established incumbents, blue ocean companies are those creating entirely new markets and/or making current incumbents obsolete. Such opportunities are rare and usually only available in the private markets. A recent example is OpenAI, which took the world by a storm with the release of ChatGPT and brought the power of large language models (LLMs) to both consumers and enterprises across the globe.  

Why consider late‑stage venture/growth as part of a diversified portfolio?  

The ongoing pattern of more companies choosing to remain private longer has made investing in private markets more compelling when looking for high-growth tech companies. This is reflected by an increase in the number of investors seeking those opportunities as they look for ways to diversify from public markets. We believe private markets offer access to the next wave of innovative firms at an earlier stage, bringing the potential for greater returns. 

Risks: In addition to business and market risk, investing in private markets involves certain other risks including but not limited to liquidity risk, valuation risk, operational risk, and regulatory risk. The specific securities identified and described are for informational purposes only and do not represent recommendations. 

Emma Norchet is the lead private technology investor on the Centralized Private Equity Team in the U.S. Equity Division at T. Rowe Price. She is a vice president of T. Rowe Price Investment Management, Inc.