Private Equity: A Guide to Equity Investment

Private equity is a kind of equity investment in anworking capital.
asset that cannot be traded freely on the stock3) Private equity funds are helpful when it comes
market. Private equity is of many kinds, includingto facilitating mergers and acquisitions.
mezzanine capital, angel investing, leveraged4) Private equity funds make a company's
buyout, venture capital etc.balance sheet stronger, and help it develop.
Private Equity: How it Works5) Private equity funds are a great way to obtain
Private equity funds are set up as limitedfunds for small businesses and start-ups that
partnerships. These limited partnerships arehave not been able to get loans or grants.
controlled by private equity companies that are6) The general partner runs the company, so the
the general partner in the limited partnership. Theinvesting partner, or the limited partner, cannot
private equity company encourages individuals andinterfere in the management of the company.
institutions to invest in the private equity fund.Disadvantages of Private Equity Funds:
This way, the investors become limited partners,Apart from advantages, private equity funds
though the general partner controls the companyhave certain drawbacks.
management. When the general partner thinks1) Since private equity funds are not open to
that a particular investment is feasible, it asks theinvestment on the stock market, anybody who
limited partner to invest the amount it guaranteed.wants to sell stocks of a private equity fund finds
The general partner chooses the investmentit difficult to locate a buyer.
portfolio of the partnership, while the limited2) There are certain transfer limits on private
partner provides funds for investing. The limitedequity.
partner, or investor, in turn profits through sales,3) Most individuals cannot afford the high
mergers, recapitalization or initial public offering.investments required in a private equity.
Categories of Private Equity:Private equity funds are an excellent investment
Private equity has many kinds of investmentsoptions for venture capitals and other
that fall under it, but the major ones includeorganizations looking for long-term investment in
growth capital, angel investing, venture capital andprojects that will bring in good returns. However,
leveraged buyout.they are not open for public trading and not
Advantages of Private Equity Funds:affordable to minor investors and individuals.
1) Funds gotten through private equity are crucialForming a private equity fund is a good option for
for the growth of industry and the developmentsmall business owners who have not been able to
of innovative products.source funds for their start-ups or long running
2) Private equity funds are used for expandingbusiness from any other source.