Q&A continuation: Debating Trends in Lower Middle Market PE with the Founders of Nextvest

After my last Q&A, I got a lot of messages and reachouts asking to discuss how we came up with the idea for Nextvest and to get my perspective on how the PE industry is evolving. To that end, I thought I'd start up more of a "discussion-focused" AMA to give my perspective and also to hopefully see some of the other PE folks on WSO chime in. Below is a starting point. --------- Today’s 'established' PE industry is actually quite new. LBOs and PE funds emerged in the 1950s and 60s, but the business model has not evolved significantly since then. The fund model has worked well for decades, and PE firms continue to strive toward larger funds and deals. But two recent trends show significant shifts: (i) PE investments increasingly go to the biggest funds and (ii) investors are seeking greater optionality, transparency, and GP-LP alignment (often through co-investments and deal-direct commitments). From those causes, we have seen significant shifts: - Reduced opportunity for new funds and growth of independent sponsors (both in quality and quantity). As top-tier PE talent departs from established funds, we have seen numerous deal-by-deal smaller shops created (instead of taking 12-24 months to raise a fund, they immediately pursue deals and arrange capital at the same time). - Attractive opportunities emerging in the lower middle market. Less capital has been targeted toward this segment. Risk-adjust returns remain high while purchase multiples allow more consistent and lower prices than those seen at other deal sizes. Do you agree? Are independent sponsors good or bad? What about the middle market? Where have you seen changes?