Private equities, Venture Capitals cash in on market rally

• Private equity (PE) is a form of financing where money, or capital, is invested into a privately held company.
•  Typically, PE investments are made into mature businesses in traditional industries in exchange for equity, or ownership stake.
• PE is a major subset of a larger, more complex piece of the financial landscape known as the private markets.
• How does private equity work?
  • To invest in a company, private equity investors raise pools of capital from limited partners (LPs) to form a fund.
  •  Once they’ve hit their fundraising goal, they close the fund and invest that capital into promising companies.
  • PE investors may invest in a company that’s stagnant or distressed, but still shows signs for growth potential.
  • When a PE firm sells one of its portfolio companies to another company or investor, the firm usually makes a profit and distributes returns to LPs that invested in its fund.
  •  Some PE-backed companies may also go public.
• What is a private equity firm?
  • A private equity firm is a type of investment firm. They invest in businesses with a goal of increasing their value over time before eventually selling the company at a profit.
  • Similar to venture capital firms, PE firms use capital raised from limited partners (LPs) to invest in promising private companies.
  • Unlike VC firms, PE firms often take a majority stake—50% ownership or more—when they invest in companies.
  • Private equity firms usually have majority ownership of multiple companies at once. A firm’s array of companies is called its portfolio, and the businesses themselves, portfolio companies.
•  PE funds vs. hedge funds
  • Both private equity funds and hedge funds are restricted to accredited investors. However, the biggest differences between PE funds and hedge funds are fund structure and investment targets.
  •  Hedge funds tend to operate in the public markets, investing in publicly-traded companies while PE funds focus on private companies.
  • Unique characteristics of private equity:
    • PE firms often invest in mature businesses in traditional industries.
    • Using capital committed from LPs, PE investors invest in promising companies—typically taking a majority stake (>50%).

 Unique characteristics of venture capital:

• • • VC firms often invest in tech-focused startups and other young companies in their seed.
    • Using committed capital, VC investors usually take a minority stake (<50%) in the companies they invest in.
    • Most of these companies are not fully established or profitable, so they can be risky investments—but with that risk comes the opportunity for big returns.