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According to research from BDO Stoy Hayward Corporate Finance, some 64% of venture capitalists expect their level of investments to rise in the coming year. More than half want to provide development capital alongside their usual buy-out activity.

BDO claims the trend is fuelled by two factors. Fewer opportunities to fund MBOs are forcing venture capitalists to be more flexible in their investment patterns. Meanwhile, the recovery of the capital markets means that many houses want to exit some of their current investments over the coming year.

Andrew Ware, a corporate finance partner at BDO, said the increase in demand for development capital deals is unique to houses investing in mid-market companies with a turnover up to £200 million, and not characteristic of the whole private equity sector.

"It shows that funding is available not just for buy-outs but also for the capital needed to grow businesses," he added. "It also may indicate that many of the more obvious MBO opportunities have already been taken, which is encouraging venture capitalists to look at different investments. Consequently, this will be very welcome news for ambitious private companies looking to private equity to fund fresh growth."

Outsourcing, healthcare and IT were the top three most attractive sectors for investment among private equity houses. Indeed, more than half said they would be prepared to pay more or take a greater equity risk to close a deal in their preferred sectors.

"Through a better understanding of the issues in a specific sector, private equity investors hope to secure the best deals and reduce their risk," Ware said. "The next year looks to be a lucrative one for those ambitious mid-market private companies who understand how to take advantage of this opportunity."

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