Acquiring tech companies built on debt... returns fall below venture investment

US buyout funds have returned roughly 15% annually over the past decade, trailing the Russell 3000 and falling short of the approximately 18% yearly returns delivered by US venture funds, according to an a16z newsletter citing Bain data. The findings challenge the leveraged buyout model, in which firms acquire tech companies with debt, improve operations, and sell at a profit, as borrowing costs and valuations have weighed on performance. Venture funds outperformed the Russell 3000 by about 2.3 percentage points annually over the same period, while buyouts failed to beat the index at all. The result matters because private equity has long justified its fees and leverage by claiming superior returns, and the data suggest that edge has eroded. Watch next for whether higher-for-longer interest rates further compress buyout returns and push allocators toward venture and public equities.