Surprising results in private cost of capital survey

BVWireIssue #227-4
August 25, 2021

cost of capital
cost of capital, pepperdine private capital markets study, risk analysis, industry analysis

Over half (58%) of privately held business owners believe their cost of equity is less than or equal to 12%, according to the “2021 Private Capital Markets Report” from Pepperdine University Graziadio School of Business and Management. Approximately 21% of respondents indicated their business cost of equity capital is in the range of 9% to 10%, the range most cited. These low figures indicate that there may be a misunderstanding among business owners about the returns that investors require.

The report is the result of an annual survey of expected rates of return with respect to private companies. Respondents include 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. We note that the majority of private firms that responded had 20 employees or fewer, with 46% having no more than five employees. Also, over half of them had annual revenues less than $1 million.

Respondents to the 2021 survey will receive the report for free and should have already received coupon codes for this and other reports. The codes will expire at the end of this month, so, if you are planning to use one of them, please do it quickly. For others, a small fee of $100 will be charged for the report, which is available if you click here.

Extra: Selected required rates of return from the Pepperdine survey are now included in the Cost of Capital section of the monthly Business Valuation Update.

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