Vol. 12 No. 2 (2026)
June 2026

Articles

Private equity investments in early-stage financing during COVID-19

Published 2026-06-30

  • Josephine Gemson
    • ,
  • Matthew Orcutt

Josephine Gemson
King's University College

Matthew Orcutt
King's University College

Abstract

Objective: This paper explores the trends of Private Equity (PE) investments and their financing strategies in early-stage financing during COVID-19. The questions asked are: How does a shock such as a global pandemic which led to a subsequent closure of every sector in every country affect the allocation of PE resources among portfolio start-ups? What are financing strategies of PE investors in such an environment?

Research Design & Methods: This study uses data sourced from S&P Global with all direct and completed investments by PE investors / sponsors between 2020 and 2022. Research methods to test the hypotheses include data visualisation, and regression and mediation analysis.

Findings: Data analysis indicates an initial muted performance in the first two quarters of 2020 in both number and volume of investments. The average investment was USD 3.48 million in 2020, to increased to USD 4.58 million in 2021, and increased again to USD 5.03 million in 2022, indicating increasing comfort among PE firms in investing within a changing environment. PE firms continued to invest in familiar regions including North America, Asia, and Europe, and showed selective participation through larger average investments in newer regions, such as the Caribbean. Seed financing was by far the largest financing stage both in terms of number (69% of sample) and volume (65% of sample) with pre-series B having largest average deal investments. Regression analysis revealed that foreign investments significantly influenced the relationship between offering type and deal size. While international offerings had a positive association with foreign investments, mediation analysis indicated that foreign capital ultimately decreased investment size.

Implications & Recommendations: This study highlights the resilience of global PE investments and their adaptive investment strategies during the COVID-19 pandemic. The rapid rebound in deal activity suggests that PE firms preferred investing in mature ecosystems and established sectors to position themselves to preserve value. Selective larger investments in emerging regions, such as the Caribbean, suggest opportunities for value creation. The mediating role of foreign PE investment on offering types and deal sizes indicates PE preference for simpler and lower-risk transactions during periods of heighted uncertainty.

Contribution & Value Added: First, this study enriches the literature PE financing and entrepreneurial activity. Second, it contributes to the growing literature on crises by examining the impact of COVID-19 on start-up financing. Third, this paper provides insights into strategic investing by PE firms during periods of heightened uncertainty. Finally, the examination of PE-investments in entrepreneurial activity adds to the study and practice of entrepreneurial finance by highlighting the role of foreign investments in deal making when faced with systemic risks and their strategies towards resilience and capital preservation.

Keywords

Private Equity Investments, Start-up Financing, COVID-19 crisis, mediation analysis, foreign investment

(PDF) Save

Author Biography

Josephine Gemson

Associate Professor of Finance at the School of Management, Economics, and Mathematics at King’s University College at Western University. Her research interests include private equity, decision-making under uncertainty, infrastructure finance, and ethics.

Matthew Orcutt

Research Associate at the School of Management, Economics, and Mathematics at King’s University College at Western University. His research interests include private equity, and data analytics.

References

  1. Aizenman, J., & Kendall, J. (2008). The internationalization of venture capital and private equity. NBER Working Paper No. 14344. https://doi.org/10.3386/w14344
  2. Aldatmaz, S., & Brown, G.W. (2020). Private equity in the global economy: Evidence on industry spillovers. Journal of Corporate Finance, 60, 101524. https://doi.org/10.1016/j.jcorpfin.2019.101524
  3. Baron, R.M., & Kenny, D.A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173-1182. https://doi.org/10.1037/0022-3514.51.6.1173
  4. Bartik, A., Bertrand, M., Cullen, Z., Glaeser, E.L., Luca, M., & Stanton, C. (2020). How are Small Businesses Adjusting to COVID-19? Early Evidence from a Survey. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3574741
  5. Berger, A.N., & Udell, G.F. (1998). The Economics of Small Business finance: the Roles of Private Equity and Debt Markets in the Financial Growth Cycle. Journal of Banking & Finance, 22(6-8), 613-673. https://doi.org/10.1016/s0378-4266(98)00038-7
  6. Bernake. (1983). Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression. The American Economic Review, 73(3), 257-276.
  7. Bernake. (2008). Implications of the financial crisis for economics. Retrieved from https://www.bis.org/review/r100929a.pdf on July 12, 2025.
  8. Block, J. H., De Vries, G., & Sandner, P. (2010). Venture capital and the financial crisis: An empirical study across industries and countries.
  9. Cumming, D. (2012). The Oxford handbook of venture capital. Oxford University Press.
  10. Block, J., & Sandner, P. (2009). What is the effect of the financial crisis on venture capital financing? Empirical evidence from US Internet start-ups. Venture Capital, 11(4), 295-309. https://doi.org/10.1080/13691060903184803
  11. Breschi, S., Johnstone, N., & Menon, C. (2021). Are Start-ups Funded by Public Venture Capital Different? New Cross-Country Evidence from Micro-Data. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3940155
  12. Brown, R., Rocha, A., & Cowling, M. (2020). Financing entrepreneurship in times of crisis: Exploring the impact of COVID-19 on the market for entrepreneurial finance in the United Kingdom. International Small Business Journal: Researching Entrepreneurship, 38(5), 026624262093746. https://doi.org/10.1177/0266242620937464
  13. Clark, C. (2008). The impact of entrepreneurs’ oral “pitch” presentation skills on business angels’ initial screening investment decisions. Venture Capital, 10(3), 257-279. https://doi.org/10.1080/13691060802151945
  14. Conti, A., Dass, N., Di Lorenzo, F., & Graham, S.J.H. (2019). Venture capital investment strategies under financing constraints: Evidence from the 2008 financial crisis. Research Policy, 48(3), 799-812. https://doi.org/10.1016/j.respol.2018.11.009
  15. Cowling, M., Brown, R., & Rocha, A. (2020). Did you save some cash for a rainy COVID-19 day? The crisis and SMEs. International Small Business Journal: Researching Entrepreneurship, 38(7), 026624262094510. https://doi.org/10.1177/0266242620945102
  16. De Clercq, D., & Sapienza, H.J. (2006). Effects of relational capital and commitment on venture capitalists’ perception of portfolio company performance. Journal of Business Venturing, 21(3), 326-347. https://doi.org/10.1016/j.jbusvent.2005.04.007
  17. De Vries, G., & Block, J.H. (2011). Venture capital syndication in times of economic crisis. Venture Capital, 13(3), 195-213. https://doi.org/10.1080/13691066.2011.600278
  18. Gemson, J. (2024). Acquisitions of private-equity-backed private companies: Insights from acquirer’s choice of target and the implications on deal value through the subprime crisis. Entrepreneurial Business and Economics Review, 12(3), 7-24. https://doi.org/10.15678/eber.2024.120301
  19. Gemson, J., Gautami, K.V., & Thillai Rajan, A. (2012). Impact of private equity investments in infrastructure projects. Utilities Policy, 21, 59-65. https://doi.org/10.1016/j.jup.2011.12.001
  20. Gemson, J., & Rajan, A.T. (2015). A new perspective on private equity stage financing: evidence from investments in infrastructure. Venture Capital, 17(4), 299-325. https://doi.org/10.1080/13691066.2015.1052193
  21. Giupponi, G., & Landais, C. (2020, April 1). Building effective short-time work schemes for the COVID-19 crisis. VoxEU.org. Retrieved from https://voxeu.org/article/building-effective-short-time-work-schemes-covid-19-crisis on July 12, 2020.
  22. Gompers, P.A. (1999). The Rise and Fall of Venture Capital. Business and Economic History, 23(2), 1-26.
  23. Gompers, P.A., Kaplan, S.N., & Mukharlyamov, V. (2022). Private Equity and Covid-19. Journal of Financial Intermediation, 51, 100968. https://doi.org/10.1016/j.jfi.2022.100968
  24. Goodell, J.W. (2020). COVID-19 and finance: Agendas for future research. Finance Research Letters, 35(101512), 101512. https://doi.org/10.1016/j.frl.2020.101512
  25. Gopinath, G. (2020, April 14). The Great Lockdown: Worst Economic Downturn Since the Great Depression. International Monetary Fund. Retrieved from https://www.imf.org/en/Blogs/Articles/2020/04/14/blog-weo-the-great-lockdown-worst-economic-downturn-since-the-great-depression on July 12, 2020.
  26. Green, M.B. (2004). Venture Capital Investment in the United States 1995-2002. The Industrial Geographer, 2(1), 2-30.
  27. Hall, B.H., & Lerner, J. (2010). The financing of R&D and innovation. In B.H. Hall & N. Rosenberg (Eds.), Handbook of the Economics of Innovation (Vol. 1, pp. 609-639). North-Holland.
  28. Hassan, T.A., Hollander, S., van Lent, L., & Tahoun, A. (2020). Firm-level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1. National Bureau of Economic Research. https://doi.org/10.3386/w26971
  29. Hausman, J.A. (1978). Specification tests for econometrics. Econometrica, 46(6), 1251-1271
  30. Howell, S., Lerner, J., Nanda, R., & Townsend, R. (2020). Financial distancing: How venture capital follows the economy down and curtails innovation. https://doi.org/10.3386/w27150
  31. Huang, L., & Knight, A.P. (2017). Resources and Relationships in Entrepreneurship: An Exchange Theory of the Development and Effects of the Entrepreneur-Investor Relationship. Academy of Management Review, 42(1), 80-102. https://doi.org/10.5465/amr.2014.0397
  32. Humphery-Jenner, M., & Suchard, J.-A. (2013). Foreign VCs and venture success: Evidence from China. Journal of Corporate Finance, 21, 16-35. https://doi.org/10.1016/j.jcorpfin.2013.01.003
  33. Kerr, W.R., Nanda, R., & Rhodes-Kropf, M. (2014). Entrepreneurship as Experimentation. Journal of Economic Perspectives, 28(3), 25-48. https://doi.org/10.1257/jep.28.3.25
  34. Lagarde, C. (2020). Our response to the coronavirus emergency. Retrieved from https://www.ecb.europa.eu/press/blog/date/2020/html/ecb.blog200319~11f421e25e.en.html on July 1, 2025.
  35. Ludvigson, S., Ma, S., & Ng, S. (2020). COVID-19 and The Macroeconomic Effects of Costly Disasters. https://doi.org/10.3386/w26987
  36. Mason, C. (1999). Editorial. Venture Capital: Rationale, aims and scope. Venture Capital, 1(1), 1-46. https://doi.org/10.1080/136910699295974
  37. Megginson, W.L., & Weiss, K.A. (1991). Venture Capitalist Certification in Initial Public Offerings. The Journal of Finance, 46(3), 879-903. https://doi.org/10.1111/j.1540-6261.1991.tb03770.x
  38. Nanda, R., & Rhodes-Kropf, M. (2013). Investment cycles and startup innovation. Journal of Financial Economics, 110(2), 403-418. https://doi.org/10.1016/j.jfineco.2013.07.001
  39. Nassim Nicholas Taleb. (2007). The Black Swan. Random House.
  40. Nolop, B. (2007, September 1). Rules to Acquire By. Harvard Business Review. Retrieved from https://hbr.org/2007/09/rules-to-acquire-by on March 22, 2023.
  41. Rojec, M., & Knell, M. (2017). Why is there a Lack of Evidence on Knowledge Spillovers from Foreign Direct Investment?. Journal of Economic Surveys, 32(3), 579-612. https://doi.org/10.1111/joes.12207
  42. Samila, S., & Sorenson, O. (2017). Community and Capital in Entrepreneurship and Economic Growth. American Sociological Review, 82(4), 770-795. https://doi.org/10.1177/0003122417711699
  43. Scott-Kennel, J. (2004). Foreign Direct Investment: A Catalyst for Local Firm Development?. The European Journal of Development Research, 16(3), 624-652. https://doi.org/10.1080/0957881042000266642
  44. Sequoia. (2020, March 5). Coronavirus: The Black Swan of 2020. Medium. Retrieved from https://medium.com/sequoia-capital/coronavirus-the-black-swan-of-2020-7c72bdeb9753 on February 10, 2026.
  45. Shane, S., & Cable, D. (2002). Network Ties, Reputation, and the Financing of New Ventures. Management Science, 48(3), 364-381. https://doi.org/10.1287/mnsc.48.3.364.7731
  46. Townsend, R.R. (2015). Propagation of financial shocks: The case of venture capital. Management Science, 61(11), 2782-2802. https://doi.org/10.1287/mnsc.2014.2110
  47. Tykvová, T., & Schertler, A. (2011). Cross-border venture capital flows and local ties: Evidence from developed countries. The Quarterly Review of Economics and Finance, 51(1), 36-48. https://doi.org/10.1016/j.qref.2010.09.005
  48. Wójcik, D., & Ioannou, S. (2020). COVID‐19 and Finance: Market Developments so Far and Potential Impacts on the Financial Sector and Centres. Tijdschrift Voor Economische En Sociale Geografie, 111(3), 387-400. https://doi.org/10.1111/tesg.12434

Downloads

Download data is not yet available.

Similar Articles

1-10 of 233

You may also start an advanced similarity search for this article.