Understanding Various Types of Private Equity Investment
Often referred as “family of alternative
investing methods” by business leaders, private equity is a bit complex and
multidimensional topic to understand. It typically includes leveraged funds,
growth equity funds, venture capital, and many other type of special situation
funds.
Venture Capital Funds: These funds can be further divided into two sub-types—early stage
funds or later stage funds. Venture capital investment involves acquiring
minority stakes in growth sectors like healthcare, bio-tech, internet, and
energy. The basic motto of venture capitalist funds is recruiting the right
people, professionalize various corporate functions, and make the functions of
the company more streamlined.
Growth equity funds: These funds involves investment in more mature markets who are
looking to upscale their operations and day-to-day business procedures.
Contrary to the venture capitalist funds they invest more broadly and are
target specific. More or less, growth equity funds can be seen as a bridge
between venture capital and private equity. In India, growth equity funds
highly depend upon the fluctuations of real estate fund in India.
Leveraged buyout funds: These types of investments typically work on acquiring the
controlling stakes. Either they work alone or in partnership with other PE firms. Usually leveraged buyouts involves the investment of little bit of their
money and a bit of investment from the loan that they take from the bank.
PE firms typically works on a combination
of techniques which includes cutting costs, expanding profitability, making new
partnerships, or the combination of all of the above. Though, private equity
investments always come with a bit of risk factor but that is what businesses
are all about.
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