Private equity

The goal of private equity investors is typically to acquire significant control or ownership in a company, improve its value, and eventually sell it at a profit, often through an exit strategy like a sale, merger, or public offering.

Private equity investment can take different forms. Leveraged buyouts (LBOs), for instance, involve purchasing a company using a combination of equity and borrowed funds for leverage. The aim is to improve the company’s performance and sell it at a profit. Private equity firms are also known for investing in distressed companies, restructuring them and turning them around to achieve profitability before selling them.

Private equity is often mistakenly equated with venture capital investment. While both involve investing in private companies in order to generate a profit, they differ in several key areas.

Perhaps the most important distinction is that private equity firms typically invest in more mature, established companies. Venture capital firms, on the other hand, tend to invest in earlier-stage start-ups, often in the technology industry or in innovative sectors.

For this reason, private equity investment tends to be lower risk compared to venture capital. However, the potential returns can be much higher in venture capital investment. Since venture capital firms target earlier-stage start-ups, companies that have a potential for exponential growth.

Therefore, venture capital firms expect that many of their investments won't succeed, but they rely on the few that do to deliver big payoffs, making up for the losses. In contrast, private equity firms expect most of their investments to be profitable, focusing on smaller but steady, consistent returns.