What is Private Equity & Venture Capital?

Private Equity

Private Equity is a form of equity investment into private companies not listed on the stock exchange. It is a medium to long-term investment, characterized by active ownership. Private equity builds better businesses by strengthening management expertise, delivering operational improvements and helping companies to access new markets.

Private Equity investments are made into relatively mature companies in traditional business sectors. Generally those companies have already proven business models, they are able to generate revenue and profits but don't have sufficient funds to expand and restructure operations.

There are two main types of Private Equity Investments:


Growth Capital

Growth Capital invests in relatively mature companies that are looking for capital to expand or restructure operations without a change of control of the business.

Buyout

In a typical buyout transaction the private equity firm buys control of an existing firm. In both cases private equity investors take active role in a company, foster growth and create additional value through their expertise and network.

There is also a third type of Private Equity:

Mezzanine

Mezzanine financing is a hybrid of debt and Private Equity that is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full.


Venture Capital

Venture Capital is a type of private equity focused on start-up companies. Venture capital funds back entrepreneurs with innovative ideas for a product or service who need investment and expert help in growing their companies global. Investors who invest in high-risk, high growth potential tech companies with scalable business models are Venture Capitalists, or VCs. They manage funds and have the capacity to invest large sums throughout the different stages of company‚Äôs development. VC-s take a very active role in the companies they invest as they expect high returns on their shares they got in exchange for the funding. Relationship between the parties can be pretty lengthy as it takes generally 5-10 years to build a successful company before it can be sold.

Watch Invest Europe's video 'What is Private Equity?' and read 'Little Book of Private Equity' to find out more.




Cover photo: Craig Garner