What is PE funds?
Private equity funds are limited partnerships or collective investment schemes, which are managed by investment professionals, who invest in the effects of equity – shares representing company ownership. PE funds invest in portfolio companies and acquisition prices are based on multiples of the company’s historical income. Multiples depend on the industry and size of the company. The final goal of the private equity fund is to get out of investment for the IRR, namely, the level of internal return. Exit is IPO (initial public offering) company portfolio, sales through M & A (mergers or acquisitions) or secondary sales – to other PE companies.
How did PE funds differ from venture capital? Although the term equity is private and venture capital is sometimes used alternately, with the separating line between them becomes less different in recent years, there are still several features that represent the difference in this process.
Preferences stage Lifecycle Corporate
Traditionally, VC tends to provide initial capital and early stages for businesses and technologies that appear. The company PE funds more adult companies, provide growth capital to consolidate and expand existing companies (secondary round money, mezzanine investment).
Investment fund source
VC funds represent investment capital collected have institutions and rich individuals as sources. PE companies use funds obtained from equity securities, non-public stocks and investment sources collected used by VCS.
Take a risk
Making investment in the company’s early stages, venture capitalists have greater risk taking. As many as half of their funded efforts are usually expected to fail, therefore VCS is more likely to put their money into a lot of start-up, also requesting a high return of investment, to minimize the possibility of losing income. When the PE company invests in companies that have proven themselves, the risk of losing their money is lower, because there is a return on investment that is faster than in the case-up case.
The VC and PE companies estimate that the level of control is high on the management of the companies they invest, such as seats on the board of directors. Each company decision can only be made with their approval and the positive aspects are they provide assistance and expertise whenever needed. However, venture capitalists have been proven to be less disturbing in the operation of companies funded than private equity companies.