Is Private Equity Cooked? Andreessen Horowitz Says Buyout Math Has Broken

By Daniel Okafor

US buyout funds returned 14.5% a year over the last decade and still underperformed the Russell 3000 — with borrowed money. That is the sharpest fact in a new Andreessen Horowitz essay asking whether private equity is "cooked." The firm's answer: not overnight, but the conditions that made the 2010s are gone.

The data points stack up against buyout. US venture, unlevered, returned 17.6% a year over the same 10 years — 2.3 points ahead of the Russell 3000. PE-backed middle-market companies carry 4.7–6.0x adjusted EBITDA in net debt across the 2019–25 vintages, per J.P. Morgan, roughly 2.5 to 3 times the 2x median of an S&P 500 company.

The piece draws on a real estate analogy. Tech buyout was the good house on an ideal street. Venture was the undeveloped lot across town. Now the neighborhood is being rezoned. Buyout, a16z argues, is a late-cycle asset class. It works when a technology wave has settled and business models are predictable enough to borrow against. A new wave — the current one — favors venture.

Has this happened before?

Twice, per the essay. Top-quartile venture beat top-quartile buyout through the internet build-out, and again through mobile and cloud. In between, for vintages from roughly 1998 to 2005, venture trailed. The author writes: "the most fatal error in venture is trying to time innovation." LPs who commit consistently across vintages catch the lags but also catch the absurd highs.

The marks already diverge. In the first half of 2026, venture funds marked their tech companies up 16%, while buyout funds marked their tech holdings down 4% (MSCI, holding-level, gross of fees).

What is carrying the debt?

The 2010s were the golden years. Low rates and steadily rising multiples, per Bain's Global Private Equity Report 2026, "powered over 50% of all buyout returns." SaaS was manna: capital-light, recurring revenue, easy to lend against. Venture had funded the model unlevered in the mid-2000s. PE bought it in the 2010s once it was mature.

Today, roughly half of US PE exits by count in 2025 were sales to another sponsor (PitchBook). Many companies bought in 2021–22 can no longer cover interest in cash and are adding it to the loan. For those borrowers, loan-to-value went from 44% to 75% in a year. Seventy percent of debt foreclosed in 2025–26 came from 2021 or 2022 deals. PE firms backed 54% of the largest US corporate bankruptcies during 2025 (filings with liabilities of $1 billion or more).

The emblematic case is Medallia. Thoma Bravo bought it in 2021 for about $6.4 billion. This year it handed the company to lenders led by Blackstone, wiping out about $5.1 billion of equity. "If a sponsor of that caliber couldn't make a 2021 deal work, blame the vintage," the essay reads.

Are the valuations real?

The author is blunt: the people who own the house are the ones doing the appraising. PE owns companies outright and prices them behind closed doors. When no outside buyer appears, sponsors sell to continuation funds they also manage. Those vehicles made up 14% of PE exit value in the first half of 2026, up from 5% in 2020 (Jefferies). Some funds borrow against whole portfolios — NAV loans — adding a second layer of debt to send cash back to LPs.

Publicly traded BDCs heavy in software trade well below NAV, with default rates ranging from 1–3% to about 15% depending on what you count. Realized losses are under 1%. The losses have not been taken yet. About $140 billion of risky PE-backed loans mature in 2028, another $160 billion in 2029, against a two-year-out average of about $60 billion in 2023–25. A third is software; a quarter is rated CCC+ or below (Wall Street Journal, PitchBook).

Can buyout adapt?

The growth math has tightened. Bain says a typical 2015 buyout needed about 5% annual EBITDA growth to return 2.5x in five years; the same deal today needs 10–12%. Golub Capital's software borrowers went from 9% revenue growth to under 3% in two years. EBITDA still grows — it is now a margin story, not the growth those deals were priced for.

Headwinds compound. PE-backed tech exit value is down 77% year over year. Buyout fundraising fell 16% in 2025 to $395 billion and was still lagging at midyear 2026. PE raised tech exposure late in the cycle — tech went from 23% of buyout deal value in 2018 to about one-third after ChatGPT launched in late 2022 — and has since begun to retreat.

At the top of the market, the essay argues, many of the biggest buyout firms are now public companies valued on AUM rather than outperformance. The author's advice to LPs: call your manager about the 2021–22 vintages, ask how much interest is being paid in kind, then find an exit route. Moving into private credit or secondaries does not escape the problem — private credit loans to SaaS grew from about $8 billion in 2015 to more than $500 billion by end-2025 (BIS), with the lender's upside capped at the interest owed.

Venture, by contrast, is posting outlier growth: Revolut, Databricks, SpaceX and Anduril grew revenue 46%, 80%+, 92% and 100%+, respectively. Anthropic raised $65 billion in a single round in May — more than the $56.6 billion Electronic Arts take-private, which Bain calls the largest buyout on record. A top 5% US venture fund from 2007–16 vintages returned 5.3x DPI; a top 5% buyout fund returned 3.5x. The essay closes on the trade: the 2010s are not coming back, and a few rate cuts will not rebuild them.