Thinking of some alternative ways of investing your assets? You should consider the option of investments funds into privately-held businesses. As a matter of fact, the private equity market size has multiplied by three times in the last ten years from $2 trillion in 2010 to more than $6 trillion in 2021, and it is still gaining momentum. Such a tendency made it a highly prospective stream of investment.
Let’s figure out what types of private equity investments exist, equity investment examples, private equity markets, and why private equity is a good idea to facilitate your process of making the decision.
Private Investments Equity Fundamentals
Let’s start with the basics and figure out what exactly we call private equity (PE).
- Private equity is investing in non-publicly-traded companies intending to improve their performance or privatize them (take from the public into the private sector).
Usually, private equity firms get their capital from investors, which can imply pension funds and wealthy individuals, and operate that money to buy stakes in other private companies. They may work to improve the company’s processes, like reducing the cost of production and increasing profitability (to sell their stake for a profit).
Private Equity Specialties
Certain private equity firms and private equity funds specialize in a specific type of private equity transaction. While venture capital is frequently classified as a subset of private equity, its specific function and skill set distinguish it and have given rise to separate venture capital firms that dominate their industry. Also, there are some other areas:
- Distressed investing
- Growth equity
- Sector specialists
- Secondary buyouts
- Carve-outs
So keep those in mind if you think to invest private company.
Private Equity Deal Types
There exist three main types of private equity investment: venture capital, growth equity, and buyouts. Let’s take a look at all three of them.
- Venture capital.
It’s a type of private equity investment that is done in the first stages of stages startups. At that time, venture capitalists supply seed funding and get a share of the company in return. This type of investment may be a bit dangerous and is the reason most startups are not able to give any proofs of their future success at the time you are investing the money. Yet, if it plays well, then it may bring to the investor mindblowing numbers.
- Growth equity.
This is a form of private equity when capital investment is conducted in an already existing, fully-operating company. In such cases, investment is given in exchange for a minor share of the business. Growth equity investors have abilities to analyze the track the financial history, check clients’ perspectives in the market, and test products prior to telling their decision, which lowers the risks of losing money.
- The buyout.
This private equity investment is conducted through the purchase of a developed business by a private equity company or the existing administration team. While the previous investors exit, the new investors also own a controlling share of the business. Buyouts are a top decision for companies that require internal change or have a need to conduct acquisitions without losing big money from their private capital.
How Are Private Equity Funds Managed?
Let us explain how private equity funds are managed. It is usually done by a group of experts who are accountable for growth capital. These people are often called general partners. they have impressive experience in investing in private equity markets and know how to operate private investment funds. Also, these profs have the following responsibilities:
- Sourcing investment opportunities
- Performing due diligence on potential deals
- Negotiating the terms of the deal
- Setting up the portfolio
- Come up with a plan to maximize returns
General partners also have a signed fiduciary duty. According to it, those people have to act in their best interests and make investment decisions in private equity markets.
What Is the History of Private Equity Investments?
To make the long story short: private equity investments have been around for centuries. The earliest private equity fund acts are dated to the 1600s at the time when rich people invested in businesses and received a share of the profits. Talking about the modern private equity industry started its formation in the mid-20th century with the first institutional private equity firms in the 1940-the 50s.
Wonder how to start a private equity investment? White Sails is here to assist you on your way. Our specialists have tons of experience in investing and will help you to get things done properly. So do not hesitate and contact us now!
