Private Equity: Shaping The Future Of Innovation

Most innovation takes place in private. That’s to say, innovative and fast-growing companies are often held in private hands.

Start-up capital may initially be sourced from friends and family, but it usually won’t be long before there is a need for professional investors and private equity to step in and take innovation from a smart idea to a business capable of transforming sectors and societies.

Private equity assets total $7 trillion and have grown by double digits over the last 30 years. Eric Deram, CEO and Managing Partner of Flexstone Partners, an affiliate of Natixis Investment Managers, believes this rate of growth is sustainable. «Innovation will always need funding,» says Deram.

«At Flexstone, we believe we have a role to play in fostering innovation by putting capital into that ecosystem,» Deram adds.

Innovation is Starved of Capital

Private capital is increasingly important given the deteriorating fiscal position of developed market governments, which were once key funders of innovation but have retrenched in recent years.

This risks a slowdown in critical healthcare and technology areas for instance, which private capital needs to address. Deram says: «In Europe in particular, we see social care and healthcare systems under extreme pressure due to constrained budgets.»

European leaders have stressed the need for more private capital across sectors. The European Commission’s competitiveness agenda, launched in early 2025, cites the need for an extra €800 billion of private capital every year until 2030 to close the funding gap with the US. Europe still relies heavily on bank financing, which is not well-suited to driving fast-paced innovation.

This creates a critical role for private capital in Europe, which totals just half that of the US. The Commission’s competitiveness agenda calls for private capital to rise to around €250 billion a year, up from €100 billion to €150 billion today.

The shift to renewable energy has also created a gap that governments alone cannot fill. The UK’s Net Zero Strategy, for instance, requires an additional £50 billion to £60 billion a year in capital investment in order to achieve Net Zero, with most of this coming from private capital.

Understanding the science as well as the financials

Access to private equity performance depends heavily on the ability of managers. The venture capital space, in particular, offers the potential for higher returns, but also higher risk, so successfully managing these risks demands thoughtful due diligence. «We need to know that the GPs truly understand the technologies underlying their investments,» Deram says.

Flexstone looks for GPs whose teams contain more than former bankers and management consultants. As an example, the firm allocates to a successful biotech GP whose founder has been a practicing medical doctor, a medical adviser to investment funds and finally a founder of her own investment firm.

GPs must not only understand the science but also be able to judge whether the science can be successfully commercialised. Deram says: «You must have the right ecosystem within a firm to get great financial returns.»

Uncertainty and complexity mean Big Pharma often doesn’t want to take the risk of investing in new and emerging technologies itself. Deram says: «We effectively take the risks on their behalf and then will sell successful innovation to the pharma companies at a later stage. Our potential returns reflect the risks we and our investors are taking.»

Similar risks apply to investing in AI. Flexstone has exercised caution on AI investments, believing AI valuations may be in bubble territory. In addition, the majority of AI development takes place in large companies, whereas Flexstone primarily targets mid-caps.

«That being said, we are convinced AI will change the world,» Deram says. «There will be fantastic opportunities ahead, and we will continue to bide our time.»

Home Bias: Supporting Local Innovation

Many investors choose to invest in their home currencies or seek to support local companies to help fill the looming gap in local technology infrastructure. Because of Flexstone’s global reach and presence in most developed economies, it is able to react to these requirements.

In fact, this approach comes naturally: one of the firm’s first clients 20 years ago was a Swiss institution that wanted to invest the majority of its mandate in Swiss companies. Employing a range of private equity structures, including primary, secondary, and co-investment strategies, Flexstone was able to fulfil the domestic-focused mandate.

Domestic mandates since then include a UK-based DC pension scheme, a French-focused portfolio, and numerous US-only portfolios. «Private equity is so diverse that it is possible to focus a strategy on most geographies and sectors, including in emerging markets, if you have the resources to do so,» Deram says.

Finding Best-in-class Innovation on a Global Scale

Other investors seek outperformance by taking a global investment approach to investing in innovation. «There are pools of excellence in most countries, but innovation is global so it is helpful to be able to take a global view of technology-driven companies,» Deram says.

Flexstone has teams across Europe, the US, and Asia, with an investment staff of 64 people across those regions. As emerging economies, particularly Asia, develop so the firm is growing its investment staff year by year in order to find and access more opportunities.

Its investment team constantly monitors and meets managers, evaluating where they are in the fundraising cycle so it can deploy rapidly when a GP moves into fundraising mode. Deram says: «Outperformance by GPs tends to be persistent – particularly in the venture capital space – and the best funds are oversubscribed, so we need to be highly proactive in our engagement with managers.»

What About the Threat of Shifting Geopolitics?

It’s difficult to avoid the question about the extent to which the macroeconomic environment has an influence on investments in innovation. Deram says it is natural for investors to be concerned about risk, but macroeconomics do not change the way Flexstone invests: «We are often asked about tariffs and dollar weakness. Before that it was Ukraine, before that Covid, before that SARS, and so on». In other words, there are always clouds on the horizon.

Flexstone’s riposte is that innovation, in particular, and private equity in general, take time to bear fruit, so most macro events have little bearing on the long-term outcome of an investment.

«You can lose a year or two in a tough environment, but this is a long-term asset class and if you back the right horse, it will likely come good,» Deram says.

One particular investor worry is over ever-shorter and infrequent IPO windows. «IPO windows are fickle,» Deram acknowledges. «Sometimes you can float anything, sometimes you cannot float even the best company.»
However, as a mid-market investor, Flexstone depends less on IPOs and more on companies and portfolios being sold to other private equity funds in secondary markets. These markets are still buoyant.

Preqin, the data provider, notes in its 2025 Global Report that smaller exits – primarily via secondary markets – prevailed in 2024 and this trend is continuing in 2025. Smaller deals, it notes, are less reliant on debt financing and are more dependent on operational improvements than on broader market factors such as interest rates.

The strength of secondaries can be seen in the numbers: the global secondaries market raised some $33.5 billion during the first quarter of 2025, accounting for 30 percent of global private equity fundraising – the highest quarterly share on record.

Risk vs Reward: It Was Ever Thus

Investing in innovation clearly carries risks, but investing in the technology of the future can have powerful societal and financial benefits.

The time horizons are long – often longer than buyouts – so the quality of managers and the companies they invest in is paramount. At the same time, these long horizons can shelter investors against the prevailing macroeconomic environment.

«Private equity is probably the best way to invest in innovation,» says Deram. «Investors with long-time horizons, a desire to improve society, and a robust risk appetite can potentially derive significant returns from portfolios with meaningful exposure to innovative companies.»

Additional Notes

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Natixis Investment Managers may decide to terminate its marketing arrangements for this fund in accordance with the relevant legislation. NATIXIS INVESTMENT MANAGERS Paris 453 952 681 Capital : 178 251 690 € 43, avenue Pierre Mendès-France, 75013 Paris www.im.natixis.com FLEXSTONE PARTNERS, SAS – Paris. Investment management company regulated by the Autorité des Marchés Financiers. It is a simplified stock corporation under French law with a share capital of 1,000,000 euros Under n° GP-07000028 –Trade register n°494 738 750 (RCS Paris). 5/7, rue Monttessuy, 75007 Paris. www.flexstonepartners.com FLEXSTONE PARTNERS, SàRL – Geneva. A manager of collective assets regulated by the Swiss Financial Market Supervisory Authority («FINMA»). It is a limited liability company with a share capital of 750 000 CHF. Trade register n° CH-112-212.153.- 8 chemin de Blandonnet. Vernier 1214 Geneva. Switzerland