Investing in assets that help your money grow has always been a hot topic. In today’s financial market, there are many ways through which you can invest money and get good returns. There are some public investing strategies and some private equity strategies.
Investment sources other than public assets, such as bonds, stocks, and so on, are very popular these days. One such alternative investment source is private equity – the investment made in any private company. For this personal investment, you get a stake or equity in this company, depending on the amount of money you have invested.
What Are Private Equity Strategies For Investment?
You will not find these private companies on the stock exchange because they are not listed there. A company must be specific years old to go for public investment. Investing in a private company is considered riskier than investing in a public company. The primary reason is that a private company is newer than a public company.
Equity in a company is also regarded as a shareholder stake. Therefore, you can calculate a company’s shareholder wealth by removing all the debt from the company’s net income.
Some private equity firms invest in purchasing stakes in a private company. The firm believes that the value of its stake in the company will be more than its original investment by a specific time.
Types Of Private Equity Investing Strategies
In essence, there are three main types of private equity investing strategies. Different strategies can suit other companies as all of them can be at different stages of the investment cycle.
Venture capital
This type of private investment is made very early in a company. The majority of these companies are startups. The funding at this stage of a company is also referred to as seed funding. This is because this money is like the seed of a plant that will help the company grow. Investors usually take more equity at this investment stage because the risk is higher.
Venture capitalists will not ask for a majority share of your company because they are just there to invest money, not run it. But the venture capitalist will ask for a substantial stake, such as 20-30% of your company’s equity.
Growth equity
This type of private equity is made in a company that is at the growing stage. This private company may need the money to expand its reach, open more plants, develop new products, and so on. By the growth stage, a company is already established, and the people know about the company.
Investors investing in such companies usually get a minority stake in the company. At this growing stage, the risk of investing in the company is considerably lower. Growth equity investors also have the convenience of checking the past financial records of the company. Investors don’t have this privilege at the venture capital stage.
Buyouts
Buyouts of a company occur at the maturity stage of a company. In this type of investment, a more prominent company with different management takes over it and then runs it.
When a company is at the buyout stage, all the existing investors in the company exit the firm by cashing in their shares. The company that takes over the company then becomes the firm’s sole owner.
Final Thoughts
If you wish to get a higher return in a short span of time, private equity investment strategies are ideal. However, you will have to remember that with the potential of a higher return, there is also an increased risk involved with these strategies.
