Often times, investors are looking for new and innovative businesses to invest in. One of the most highly sought forms of investment; private equity allows individuals to make an investment in privately held companies.
The equity of a company is the enterprise value of the company, minus any debts or liabilities. A private equity investment, then, is an investment into a company that is not traded on a public stock exchange.
While some individuals may want to invest in a company on their own, many times investors pool their money into a private equity fund, which is then used to make investments into companies. These funds are managed by a firm, who handles the investments into various companies and disperses profits to the members of the fund.
Private equity investors have an advantage over equity investors in public companies. Without shareholders to report to, the private equity investor has controlling interest in the company. They can focus on productivity and profitability, and make the potential payoff for the investor even larger when the company goes public.
One of the strategies that private equity investors use may include investing as a venture capital investor. Venture capital is used in start-up companies that show signs of greatness. Investors will back these companies in the hope that when they go public there will be a large profit.
Anther strategy is the use of growth capital. Growth capital allows a private company to expand and/or grow, offering a wider range of services or goods to consumers. Again, the ultimate goal in growth capital investments is the profit that would occur as a result of the company being taken public.
A final strategy used by private equity investors is the leveraged buyout. A leveraged buyout is typically done when a company is underfunded or losing money, with the goal of restructuring the company and then making it public.
Private equity investments are long-term investments. They are multi-year, long-hold strategies where the investors have control and influence over the operation of the company.
It is difficult to give precise results from private equity investing, as private funds are not required to release data. In addition, because the funds are invested in privately held companies, it is hard to examine the individual companies funded.