Private equity (PE) refers to an investment class which is consists of capital that is not listed on a public exchange. Seeking out funds to earn returns that are better than the achievements in public equity markets is the reason for investing in this segment.
Cooperating in this industry is classified into two categories as known Limited Partners with limited liability and General Partners who stands against the first group. The partners raise funds and manage them to yield favorable returns for shareholders, typically with an investment horizon of between four and seven years.
Investing in private equity offers several advantages to companies and startups. Accessing liquidity as an alternative to conventional financial mechanisms has been suggested by PEs and companies are following them instead of high-interest bank loans.
Providing financial services for companies and startups via certain forms of private equity, such as venture capital.
In the case of companies that are delisted, private equity financing can help such firms attempt unusual growth strategies away from the eyes of markets, as these companies don’t have the constant pressure of publishing their quarterly earnings.
Investing to obtain the benefits of PEs is passed through two main strategies. Leveraged buyouts (LBOs) and Venture capital (VC) investments.
The first strategy (LBOs) is exactly how it sounds. A company is bought by a private equity firm, and the purchase is financed through debt, which is collateralized by the target’s operations and assets.
The second one is more general. It is frequently used in relation to taking an equity investment in a young company. Private equity firms will often see that potential exists in the industry and more importantly in the target firm itself.
