Private Equity
Private equity, at its most basic, is
equity shares representing ownership of, or an interest in, an entity that is
not publicly listed or traded. Private equity is a source of investment capital
that comes from high net worth individuals and firms. These investors buy
shares of private companies or gain control of public companies with the
intention of taking them private and ultimately delisting them from public stock exchanges.
Key Features:
- Private equity firms mostly buy mature companies that are already established. Private equity firms buy these companies and streamline operations to increase revenues.
- Private equity firms mostly buy 100% ownership of the companies in which they invest. As a result, the companies are in total control of the firm after the buyout.
- They invest in already established and mature companies so the chances of absolute losses from such an investment are minimal.
Venture Capital
Venture Capital is financing given to start-up companies
and small businesses that are seen as having the potential to break out. The
funding for this financing usually comes from wealthy investors, investment
banks, and any other financial institutions. The investment doesn't have to be
just financial, but can also be offered via technical or managerial expertise.
Key Features:
- Venture capital firms mostly invest in start-ups with high growth potential.
- Venture capital firms invest in 50% or less of the equity of the companies. Most venture capital firms prefer to spread out their risk and invest in many different companies.
- Venture capitalists spend less in each company since they mostly deal with start-ups with unpredictable chances of failure or success.
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