a16z Warns Private Equity Buyout Boom Faces Structural Challenges

Andreessen Horowitz warns that the conditions supporting private equity's buyout boom in the 2010s are unlikely to return soon. The firm published commentary on November 4 describing the difficulties facing buyout firms as structural rather than temporary. Managing partner Jen Kha cited higher debt costs, fewer acquisition opportunities and slower sponsor-to-sponsor activity. Higher financing costs, slower exits and technological disruption are changing the traditional buyout business.

Low interest rates and increases in acquisition multiples helped drive the industry's expansion during the 2010s. Bain & Company estimates that multiple expansion accounted for more than 50% of buyout returns in that period. Global buyout assets under management increased from $1.6 trillion in 2015 to $3.9 trillion in 2021. Kha argues that traditional turnaround targets have become increasingly scarce, pushing firms toward purchases from other sponsors or acquisitions of public companies. PitchBook data cited in the commentary show that sales to another sponsor represented about half of U.S. private equity exits by deal count in 2025.

Figures cited by Kha put annualized U.S. buyout returns over the past decade at 14.5%, below the Russell 3000. Figures cited by Kha put U.S. venture capital returns over the same period at 17.6%. Andreessen Horowitz is among the world's largest and most influential venture capital firms, managing more than $100 billion in assets.

Kha argues that venture capital has a stronger position for benefiting from the next technological wave because venture firms invest before business models become predictable. Kha describes technology buyouts as a late-cycle asset class that typically benefits after companies establish business models lenders can underwrite. Kha warns that a new technological wave disrupts those assumptions. However, Kha argues that uncertainty benefits venture investing, where investors accept some business failures in pursuit of unusually large returns. Kha believes a massive technological wave is beginning, with boundless opportunities to build and innovate.

Kha does not argue that private equity is finished. Kha acknowledges that smaller buyouts outside highly leveraged software could still perform well. However, Kha warns that reallocating money to private credit or secondaries may leave investors exposed to struggling buyout companies. Kha urges limited partners to review their 2021 and 2022 buyout vintages. Kha also recommends examining how much loan interest is accumulating through PIK arrangements and considering exit options.

MSCI data cited in the commentary show that venture funds increased valuations of technology holdings by 16% in the first half of 2026. The same data show that buyout funds reduced valuations of technology holdings by 4% during that period. Among U.S. venture funds from the 2007 to 2016 vintages, the top 5% achieved a distributed-to-paid-in capital ratio, or DPI, of 5.3 times. The top 5% of buyout funds from those vintages achieved a DPI of 3.5 times.