Many companies generate immense value while being privately held, yet investors tend to pay a premium for assets readily tradeable in public markets. Crossover equity investors seek to capitalize on that liquidity premium by identifying promising late-stage companies and providing strategic support throughout their initial public offerings (IPOs).
In this article we explore the potential benefits of crossover equity for both companies and investors; where we think this strategy fits within broader investment portfolios; and what key characteristics we believe investors should consider when selecting a quality crossover equity manager.
Crossover Equity’s Dual-Sided Value Proposition
In the late 1990s, with the dotcom boom in full swing and young technology companies racing toward an IPO, the number of U.S. publicly traded stocks topped 8,000. That number has since fallen by half thanks to industry consolidation, onerous compliance costs and a thriving market for private capital that has allowed companies to finance their operations without help from public equity investors. Over the last 30 years, the average age of a U.S. company at the time of its IPO has crept up from 7.3 years to 11.4 years (see Figure 1).
Figure 1: Private Companies Are Increasingly Delaying Their Public Market Debuts
Average Age of U.S. IPOs: Last 30 Years
Source: PitchBook – excludes Biotech - as of December 31, 2025.
We believe this trend is creating an attractive entry point for providers of short-term, late-stage, pre-IPO investment capital—also called crossover equity.
Crossover investing differs from traditional forms of private equity (PE), including venture capital (VC) and leveraged buyouts (LBOs), which may rely on a handful of big winners to drive overall returns. Among other attributes, crossover investments tend to involve shorter investment horizons (1 to 3 years), more mature targets with clearer IPO paths, and potentially shallower J-curves, enabling a quicker return of capital, as shown in Figure 2.
Figure 2: Key Differences Between Crossover Equity and Other Private Equity Strategies
| Features | Venture Capital | Leveraged Buyout | Crossover Equity |
|---|---|---|---|
| Investment Horizon | Long: 7 – 10 years | Medium: 5 – 7 years | Short: 1 – 3 years |
| Exit Visibility | Low | Moderate | Relatively High (12 – 36 months) |
| Company Maturity | Early stage/scaling | Mature, cash flowing | Late stage, IPO ready |
| J-Curve | Deeper | Moderate | Shallower |
| Primary Value Driver | Hyper growth; product-market fit; power law | Operational efficiency, debt paydown (deleveraging) | Durable growth; valuation re-rating into public markets; structured economics |
| Downside Protection | Limited | High, via control & structure | Bespoke |
| Portfolio Construction | Highly diversified | Selective | Diversified |
| Return Dispersion | Very High | Moderately low | Balanced, driven by asset selection |
| Role in Allocator Portfolio | Innovation/long-duration growth | Cash-flowing return with leverage | Growth with shorter-duration to liquidity; efficient use of capital |
For illustrative and educational purposes only. Strategy characteristics and return objectives are general, not guarantees, and may vary by manager.
Given these characteristics, we believe crossover equity offers potential benefits for both private companies and their investors, especially in the current environment.
Potential Benefits for Companies
We believe seasoned crossover investors are well positioned to provide both financial and strategic value to management teams and PE sponsors, increasing the probability of success as companies make the complex transition to the public markets.
- Funding growth. Crossover investors can supply capital for various initiatives such as scaling operations, developing new products, expanding the sales force, making strategic acquisitions and strengthening the balance sheet.
- Signaling institutional confidence. We believe having a crossover investor in a company’s capitalization table can offer additional assurance that the shares will be well subscribed at the IPO and supported after they begin to trade, thereby increasing the probability of a successful offering and facilitating an orderly transition from a private shareholder base to a public one.
- Providing shareholder liquidity. Investment banks and consultants often recommend a “crossover round” to provide pre-IPO liquidity for early investors while bolstering an IPO’s prospects. We believe re-leveling the cap table in this way can mitigate post-IPO selling pressure from those looking to cash out once the shares begin to trade; crossover investors also may buy additional shares at the IPO price and support trading in the weeks after an offering as well.
Potential Benefits for Investors
Many companies generate more growth in the years leading up to their IPOs than after they go public; at the same time, markets tend to pay a premium for assets that readily trade versus ones that don’t.
We believe this dynamic creates a short-term, private-to-public arbitrage that experienced crossover equity investors can seek to capture, as shown by the returns plotted in Figure 3.
Figure 3: Targeting Late-Stage Private Companies Can Put the Odds in Investors’ Favor
Median Gross IRR of Pre-IPO Private Investment by Year of Private Investment
Source: PitchBook Data, Inc. Note: Dataset based on 1,674 private investment rounds from 2006 to 2022 that resulted in an IPO. Analyses removed select private investments that generated over 300% gross IRR (positive outliers). Analyses also excluded private rounds with deal size less than $20 million. These IRRs are based on aggregated industry data and do not reflect the returns achieved by any collective investment vehicle.
In our view, investing in late-stage private companies can put the odds in crossover investors’ favor by offering a comfortably predictable IPO path; capturing a consistently positive liquidity premium; and lowering operational failure rates.
Furthermore, we find that successful crossover investors can negotiate bespoke structures to help augment returns while limiting potential downside. These structural protections can take various forms:
- Liquidation preferences establish the amount of proceeds investors will receive in a sale or liquidation, providing extra protection if the company’s offering falls short of expectations.
- Conversion discounts/ratchets allow crossover investors to convert preferred-equity stakes into a greater number of shares, effectively mitigating a “down” funding round.
- Redemption rights require a company to return capital to investors by repurchasing shares, creating an exit ramp if the company ultimately doesn’t go public.
- IPO participation rights offer the option (but not the obligation) to buy additional shares at the IPO price, allowing crossover investors to maximize their potential returns.
Why would potentially promising companies be willing to offer these protections?
First, we find those protective “puts” can seem a minor concession to a company fully confident in its path to a successful IPO. Second, these companies have a strong incentive to partner with a large public-market equity investor and entice them to buy their stock, providing significant liquidity support after an IPO. That support can be especially valuable for companies that, while large, may not qualify for immediate inclusion in popular equity indices. A crossover round can muster investor demand that index inclusion would otherwise provide, allowing companies to absorb lockup-expiration selling pressure and raise enough capital to pursue growth initiatives to create additional value.
Finding the Right Fit: The Role of Crossover Equity in Broader Asset Allocations
We believe crossover equity investments can complement well diversified private and public equity portfolios, as shown in Figure 4.
Figure 4: Crossover Equity Can Offer a Unique Source of Alpha for Private and Public Portfolios
Source: Neuberger. For illustrative purposes only.
From a private-markets perspective, we believe a crossover strategy can allow investors to participate in VC and growth-equity standout investments that may carry less operational risk and be closer to a liquidity event, thereby accelerating distributions to LPs compared to the longer fund lives associated with VC and PE. From a public-markets perspective, investors may have an opportunity to capture a private-to-public arbitrage unavailable to most public equity managers, and to access a return profile that is potentially less correlated and more idiosyncratic than traditional public growth strategies.
Yet crossover equity can also present a challenge for institutional asset allocators who tend to build their portfolios using discrete buckets (public equity, private equity, etc.), each with their own liquidity assumptions, benchmarks and governance processes. Crossover equity does not fit neatly into a single bucket: Grouping it within private equity risks underestimating its potentially shorter duration, while housing it within public or growth equity risks understating the illiquidity, governance and underwriting aspects it shares with private markets.
As the boundary between private and public markets continues to blur, we believe allocators need frameworks capable of assessing a strategy on its own liquidity, duration and governance characteristics rather than defaulting to legacy classifications conceived for a more rigid market structure.
Key Considerations When Selecting a Crossover Equity Manager
We believe significant dispersion across the universe of crossover deals continues to put a premium on manager selection. Over the last two decades, we find that top-decile performing crossover investments have delivered gross internal rates of return that are 40% to 160% higher than the median crossover deal (see Figure 5).
Figure 5: Significant Dispersion Puts a Premium on Pre-IPO Investment Selection
Gross IRR Dispersions of Pre-IPO Private Investments By Year of Private Investment (Based on Post-Money Valuation)
Source: PitchBook Data, Inc. Note: Dataset based on 1,674 private investment rounds from 2006 to 2022 that resulted in an IPO. Analyses removed select private investments that generated over 300% gross IRR (positive outliers). Analyses also excluded private rounds with deal size less than $20 million. These IRRs are based on aggregated industry data, do not reflect the returns achieved by any collective investment vehicle. The IRRs for investments made between 2023 and 2025 are excluded given the selection bias associated with recent private investments and the higher IRRs generally associated with the abbreviated private investment to IPO time frame.
In our view, the most successful crossover managers possess three key attributes:
- Proven, repeatable underwriting process. First and foremost, we believe successful crossover investors should have a strong record of identifying companies on a dependable glide path to an IPO. Attractive targets tend to include those with leading market positions, sustainable growth (with relatively modest cyclicality), strong balance sheets and experienced management teams.
- Post-offering market support. We believe successful crossover investors need the ability to help shepherd contenders through the IPO process, in part by cushioning the impacts from potential near-term selling pressure. We find that crossover managers who can offer post-IPO support also tend to get better access to higher-quality pre-IPO opportunities at potentially attractive pricing.
- Structuring capability. Crossover equity contracts can include various protections and value-added kickers, from liquidation preferences to IPO participation rights. We believe successful crossover investors understand how to craft their agreements to add potential upside while managing risk from failed IPOs.
Conclusion
As more IPO contenders delay their public-market debuts, we believe crossover equity can provide the growth capital, shareholder liquidity and institutional imprimatur these companies need, while offering experienced investors the opportunity to invest in proven, high-growth companies and capture a dependable private-to-public arbitrage to generate potentially attractive risk-adjusted returns.
