Determinants of Private Equity Fundraising: An Analysis of Competition, Uncertainty, and Barriers to Entry

Abstract

We employ a two-stage, n-firm differentiated products framework to examine the effect of competition for investors' capital, uncertainty, and barriers to entry on private equity fundraising. In the first stage, firms simultaneously decide whether or not they will raise capital. Participating firms each pay an identical, fixed setup cost and subsequently compete in Cournot or Bertrand competition to sell partnership units in their funds. Our results help explain the fundraising process through analyses of equilibrium prices, quantities, firm profits, and the consumer surplus.