Private Equity

What is Private equity?

Private equity is a form of private capital which invests in established companies. Most of the times, the investee companies are privately held but sometimes they can even be listed. When the investments are done in listed companies, they are called PIPE- private investments in public enterprises. A lot of times, the PE firms buy out the entire shareholding of the company- thereby becoming the sole owners.

The typical case of private equity investments involves strategic and operational improvements, leading to growth in profits and eventual valuation of the company.

PE players take an active role in the management of the companies they invest in, working closely with management teams to implement strategy initiatives, improve operational efficiency, and drive value creation.

The ultimate goal of private equity investing is to generate attractive returns for investors by creating value in portfolio companies and realizing capital gains upon exit. Successful exits can occur through various means, including selling portfolio companies to strategic buyers, listing them on public stock exchanges through IPOs, or executing secondary buyouts with other private equity firms.

How is it different from Venture Capital?

Both are form of private investing but Venture Capital invests in early stages of the company when it is still trying to find a market for its products and services.

PE players typically invest in established business with the intent of improving their valuation or market cap if they are listed.

Having said that, many PE firms have venture capital arms as well though almost always they are managed by different teams.