Private equity: shaping the future of innovation
September 24, 2025
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8 min
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[1]. 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 Eric.
“At Flexstone, we believe we have a role to play in fostering innovation by putting capital into that ecosystem,” Eric 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. Eric 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,” Eric 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 be able to judge whether the science can be successfully commercialised. Eric 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 themselves. Eric 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,” Eric 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 react to these requirements.
In fact, this approach comes naturally: one of the firm’s first clients 20 years ago was a Swiss institution which 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,” Eric 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,” Eric 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. Eric 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.”