We are here today with the intelligent and fascinating, an investment guru who has spent his career as an investor, a fund manager, an analyst and advisor to many investment funds. Today Tyler has been discussing business investment with us and in particular we have been looking deeper into private equity, what it is, and the many examples of private equity funds. If you have been thinking about getting involved in a private equity vehicle then this article may very well be for you. Let’s take a look then at what private equity is all about, some examples of how it works, and the differences between the many vehicles out there.
The most common form of private equity funds is that of a leveraged buyout. This will see a PR fund look to take a controlling stake in a mature company that requires additional investment or which has found itself with difficulties. More often than not a PE fund will use all of their own money and some additional borrowed money to make such an acquirement. Once they have a controlling stake the fund will look to restructure the business, streamline the workforce and perhaps even sell of divisions or branches of the business which aren’t working. In some cases the fund may also sell off assets to raise funds. Once the business is ini healthier position the fund will sell its stake for a profit, repay the borrowed money and share the profits amongst the investors.
Venture capital is another fund which technically falls under the private equity umbrella, although it does differ vastly from private equity leveraged buyouts. These funds will look to invest minority stakes in young businesses and start-ups, which are operating in high growth industries such as tech, pharma or energy. The idea here to use the experience of the VC to impact opportunities for the young business and turn that low stake into a valuable one. There are some VC funds which look for later stage investment, at the point where the start-up has reached its celling and needs to expand operations, but generally the investment is made at a very early stage.
Growth Equity Funds
These funds focus on more mature businesses who are looking to grow their companies through mergers and accusations, or sometimes they may even be looking to try and do this organically. This is an investment fund which is happy to invest in a wide range of industries and the stake in return for the investment will usually be pretty small. To further complicate things, most PE and VC funds have growth equity divisions, who will be looking for these mature businesses to invest in. The best way to think about growth equity is that it sits somewhere between later stage VC investment and leveraged buyouts.
Well I think that just about covers it, do you have any questions about these funds or how you can get involved? Let us know.