Private Equity and Venture Capital

Private equity is medium to long-term private equity finance provided in return for an equity stake in potentially high growth companies whereas Venture capital comes under that category of private equity which covers the capital investments made in new companies. Both Private equity and Venture capital are important components of finance and are arguably deemed as the backbone of the financial sector. 

Since businesses at the concept stage are nascent, Venture Capital investors take a detailed and disciplined approach to evaluate not only the viability of the business idea, but also the motivation and background of the entrepreneur. Venture capitalists seek bright ideas and intelligent entrepreneurs who they believe will see their idea through to success, in exchange for a proportion of equity which fits the risk of the investment and amount of capital required. In contrast, the money divulged in Private Equity usually highlights the involvement of capital investment in a long running firm or the takeover of an operating firm, which is either under private ownership or listed on a stock exchange. One must mark that capital-raising related to Private Equity is also made from institutional investors. The management in Private Equity possesses a huge amount of equity with the personal capital reserved for making investments. 

The term Private Equity is ambiguous and not easy to comprehend as it has a secondary meaning depending on the country, probably because of myriad styles and forms of private equity. A capital investment made in a firm that involves a boosted risk is generally termed as Venture Capital. However, the returns for the investment in Venture Capital are generally generous and above average levels. Such investments usually relate to a latest technology application, some newly launched products, or some private equity news about market oriented strategies that have not been acclaimed. Venture Capital revolves around capital raised for nudging a business in its nascent stages or probably in troubling waters. Venture capitalist and Venture Capital pool are two main terms associated to Venture Capital. The person making the capital investments is termed as a Venture Capitalist while the latter includes a conglomeration in which the capital investment is made using the money of some third investment party in institutions that involve a boosted level of risk for normal capital markets or bank loans. The investment criteria framed for a Venture Capitalist includes a takeover or a public offering, however, it should occur within a period of three to seven years. In case of an unsuccessful venture, the complete capital raised by the Venture Capitalist is vanished.

From the investor point of view, Private Equity is undeniably the best sector for investing. This poised sector assists one in making tested decisions based on robust strategies related to high level issues concerning the success of one’s own company. In addition, a company can witness its value to rise without the need of unnecessary involvement besides that of the Private Equity Company having in the routine business issues. Although, one will have access to only a few details of the company working, while it is managed under the safe heads of Private Equity, yet one can be assured to fetch a lot more than expected in the long run.

Benefits Posed by Private Equity and Venture Capital

The Private Equity and Venture Capital sector has shown a remarkable transformation in UK in the recent years. There is no doubt that a firm backed by strong capital accompanied with robust management skills will grow by leaps and bounds. Even investors investing in these sectors have witnessed their money to mark an unsurpassed growth compared to results fetched in any other sector.

Making capital investments in a Private Equity fund earns an array of benefits in comparison to the other investment fields available in the market. The advantages outlined are proven to be highly beneficial not only from the investor’s point of view, but also for the firms supported or acquired by the Private Equity.

  • As Private equity and Venture Capital firms have a hidden workout with no public transparency and are also not inhibited by any sort of transparency laws that ought to be abided by public companies and firms, their work experiences a sense of independence. Such a scenario permits Private Equity firms to introduce required overhaul in the acquired company without the burden of posting the quarterly results to the SEC or a concerned body.
  • The main highlight of the numerous benefits given by Private Equity and Venture capital is that they yield more efficiency in terms of the output, apart from robust profit and revenue figures. The main essence of their real game is the presence of robust strategies used by its skilled management. Their intervention can prove of a great benefit as it can prevent a company from landing in the troubling waters of financial crisis.
  • Besides, it can prove to be a priceless source of encouragement and motivation among the firm’s management towards working hard, as huge profits directly reflect on their pockets as well. It serves as a huge incentive for the company managers, despite of fact that carried interest is always castigated for fetching financial help from investors.
  • The ability to identify risk prone areas is the main hallmark of Private Equity firms hailing a team of trained and experienced members. A highly beneficial trait, while the firm undergoes critical and high level investments that usually involve a handful of sturdy and rigorous tasks to be performed.

Venture capital versus Private Equity

Venture capital is a sub categorized attribute of a big Private Equity which includes venture capital, LBO’s, MBO’s, MBI’s, bridge and mezzanine investments. The basic factor leading to the different working of the two is the risk element involved in the capital investment made by the investor. Private Equity firms usually facilitate secondary equity and mezzanine capital investments to firms that have been operating in the market from a long time unlike venture capital, in which investors extend an equity capital for emerging companies. Amidst soaring competition among investors in UK, both Venture Capital and Private Equity firms in the country have risen to widen their sphere in a bid to grab new opportunities.