Covid-19 Impact on US Private Capital Raising Activity in 2020

The year 2020 will be remembered as a time of global disruption and uncertainty brought on by the COVID-19 pandemic. While the arrival of vaccines signaled hope and a path toward recovery, the effects of the pandemic left a lasting mark on individuals, businesses, and economies worldwide.

Many people experienced personal loss, while businesses across industries struggled to survive amid widespread shutdowns, reduced capacity limits, supply chain disruptions, and public health restrictions. These challenges led to a widespread liquidity crisis, making it increasingly difficult for companies to access the capital needed to sustain operations during such a volatile time.

Amid this economic turbulence, companies seeking to raise capital—whether through debt or equity—faced added layers of complexity. The traditional pathways to funding were altered as investors quickly adjusted to the rapidly changing environment.

In response, both debt and equity investors reevaluated their strategies, reacting to market shifts with caution and selectivity. These responses not only influenced how capital was deployed in 2020 but also laid the groundwork for how access to private capital may evolve in the years ahead.

The actions taken by investors and the lessons learned during this historic period will continue to shape the future of capital raising and financial resilience well beyond the pandemic.

Debt Markets

The COVID-19 pandemic severely disrupted the debt markets in 2020, following warnings of overleveraging after a decade of economic expansion. As uncertainty hit in March, corporate bond markets collapsed, conventional and direct lending dried up, and investors shifted toward distressed debt and special situation funds, which rapidly grew and provided costly, last-resort financing for struggling businesses. Companies without access to government aid or strong lender relationships were especially vulnerable. Debt fundraising dropped over 30% in the first half of the year, but Federal Reserve interventions and PPP loans helped stabilize markets in the latter half. Despite near-zero interest rates supporting recovery, high levels of distressed debt and the risk of widespread defaults are expected to linger, keeping uncertainty in the debt markets well into the future.

Equity

Before the onset of COVID-19, the private equity market was experiencing a decade of consistent growth, with deal volumes up 270% from 2009 to 2019 and a record $1.25 trillion in available capital. Firms across all deal sizes—from under $25M to over $500M—anticipated strong activity in 2020. However, the pandemic disrupted those expectations, causing severe volatility in equity markets. As uncertainty took hold in early 2020, many potential sellers delayed going to market, while those who couldn’t hold out were forced to sell at steep discounts. Fundraising efforts slowed, deal volume dropped, and overall market activity froze.

During the first half of the year, private equity deal volume contracted by 26% year-over-year, hitting the lowest point since 2014, with middle-market transactions suffering the most. Q2 saw even deeper declines, particularly in industries like consumer goods and industrials, while healthcare dominated deal activity due to its pandemic relevance. Despite the downturn, the profile of investors remained consistent—84% of buyers were strategic, and U.S. buyers accounted for 90% of deals.

By mid-2020, dealmakers began to adjust to remote operations and new market conditions. Q3 saw a 76% rebound in deal volume from Q2 as valuations improved and investor confidence returned. Fundraising also picked up, driven by institutional investors, with 66% contributing to private equity in 2020. This momentum continued through year-end, with total 2020 deal volume ending 16% below 2019 levels and deal value down 19%—a much better outcome than originally feared.

While the outlook remains mixed, a survey by the National Bureau of Economic Research found that 40% of private equity portfolio companies were moderately affected by the pandemic and 10% were significantly impacted. Some analysts remain cautious, citing revenue losses, broken supply chains, and increased debt burdens as threats to long-term returns. Others are more optimistic, pointing to a record $1.45 trillion in dry powder and growing buyer interest, which could fuel a strong rebound over the next three to five years. With over half of U.S. executives planning to increase M&A investments, the near future appears promising, especially for middle-market firms seeking to grow or exit.