The Basics of Private Equity

The Basics of Private Equity

To begin with, it’s important to establish just what exactly private equity is. Private equity is an asset class consisting of equity securities and debt in companies that are not publicly traded. This means that the companies are not listed in the stock market. Thus, broken down even more simply, private equity is an investment in a private company. In illustration, consider the concept of buying stock in, or loaning money to, a family-owned restaurant.

However, private equity is also a very in-depth, big field. Private equity firm manage an estimated amount of trillions of dollars in assets across the globe, with close to a trillion in committed capital that is specifically set aside for new private equity investments to be funded with. Some examples of such companies and firms include: Toys R US, Dunkin Donuts, Walgreens, and even Petco. They are all established, well-known brands that generate substantial revenue at an alarming rate, and they are all examples of private equity investments.

The Different Types of Private Equity

The three types of private equity are: Seed, Angel, and Venture Capital. These all qualify as being types of private equity because they provide substantial sums of money to companies.

* A Seed Equity is pretty much what it sounds like – the initial investment that gets the ball rolling.

* Angel equity is a bit different, as it is divided into investors and groups. The former, an Angel Investor, is a very early-on stage of funding that is taken from an affluent investor. This money is then used to fund the necessary research and/or product development that is needed for the venture to take off. Usually an additional – though much less substantial – amount is provided by a Venture Capital or Private Equity fund. This is where Angel Groups come in, too. They are groups of investors who band together to pool their money into one large investment, and also provide a sort of mentorship to their companies.

* A Venture Capital, or Capitalist, is one who provides funding for a startup (seed) or early-stage company, before it has really started to grow a profit. Obviously, this comes with substantial risk, which means money is on the line. A Venture Capital, then, is an unproven investment. While highly risky, it has the potential to be very lucrative in the long-run.

These are the basics of private equity, including what it is and the different types thereof. As a business owner, or investor, it is up to you to do further research and determine how you are going to use the knowledge to your advantage. Can you take the risk in a new investment on your own? If not, the Angel Groups and Angel Equity may be what you need.

 

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