Business Financing Sources ? How Does Private Equity Venture ...

What Are PE funds

Private equity funds are limited partnerships or collective investment schemes, managed by investment professionals, that invest in equity securities ? shares that represent ownership of a firm. PE funds invest in portfolio companies and the acquisition price is based on a multiple of the company?s historical income. Multiple depend on the company?s industry and size. The final aim of private equity funds return is to exit investments for an IRR that is, internal rate of. Exits are IPOs (initial public offerings) of portfolio companies, sales through a M & A (merger or acquisition) or secondary sales -. To another PE firm

How do PE funds differentiated from venture capitalists? Although the terms private equity and venture capital have been used sometimes interchangeably, with the dividing line between them having become less distinct in recent years, there are some features that represent silent differences to these processes.

Corporate Lifecycle Stage Preference

Traditionally, VCs Tend To provide start-up and early-stage capital for emerging businesses and technologies. PE firms fund more mature companies, providing growth capital to consolidate and expand already existing firms (secondary rounds of money, mezzanine investments).

Investment Funds Source

VC funds represent pooled investment institutions and wealthy individuals having capital as sources. PE firms use funds acquired from equity securities, non-publicly traded stocks as well as pooled investment sources used by VCs.

Risk-Taking

Making investments in early-stage enterprises, venture capitalist are exposed to greater risk taking. As many as half of their funded ventures are usually expected to fail, Therefore Vcs are more likely to put their money into a multitude of start-ups, so asking for high returns on investment, to minimize the possible loss of revenue. As PE firms invest in companies that have already proven Themselves, the risk to lose their money is lower, as there is a quicker return on investment than in the case of start-ups.

Management Control

VC and PE firms expect a high degree of control over the management of the companies they invest in, as seeking a seat in the board of directors. Any corporate decision can be made only with their agreement and the positive aspect is that They provide assistance and expertise whenever necessary. However, venture capitalists have proven to be less intrusive in the funded companies? operations than private equity firms.

Both venture capital and private equity firms are excellent alternative business financing sources, as it has become more and more difficult for enterprises to obtain significant bank loans. Having a good business plan prepared, accompanied by a relevant executive summary, and being able to prove excellent execution skills to secure a high return on investment are the key factors for a successful approach to business investors.

Source: http://www.lovefinanceinfo.com/2012/03/business-financing-sources-how-does-private-equity-venture-capital-differ-from/?utm_source=rss&utm_medium=rss&utm_campaign=business-financing-sources-how-does-private-equity-venture-capital-differ-from

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