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Surge in Late-Stage Investing Crimps Post-IPO Gains

It’s almost every week now that another private company takes late-stage funding from hedge funds, mutual funds, private equity firms and lenders, even amidst a jittery stock market. On Wednesday Pure Storage announced a $225 million investment led by asset managers T. Rowe Price, Tiger Global and Wellington Management. Tiger recently led an $80 million investment in Quora. Coatue Management spearheaded a $250 million round in the ride service company Lyft.

These so-called “growth capital” financings, the thinking goes, delay an initial public offering, giving businesses time to mature and better prepare themselves for the demands of the public markets. On the face of it that seems like a recipe for better stock performance. But a look at IPO performance since the beginning of last year shows a different picture.

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The numbers show that growth capital is transferring wealth appreciation from the public markets to the private markets.