Every other day, we come across news such as million dollars private equity investment made into an unknown Indian company by an unknown private equity fund. In the recent years, equity industry has emerged as a potential source of capital for the corporate sector in India.
Private Equity Investment
A private equity fund is an investment fund in which capital is raised from retail and institutional investors and such collective private equity funds are used for making investments in various equity securities and to a lesser extent to the debt capital as per the investment strategies associated with private equity firm. Generally, such equity firms often show interest in business showing potential for growth within five years. Firms with growth potential must be able to show an experienced team of individuals having capabilities to achieve business goals within stipulated time.
Private equity capital is not listed on a public stock exchange. The majority of private equity investors are institutional and accredited investors who can commit large sums of money for long periods of time. Many equity firms conduct leveraged buyouts (LBOs), where large amounts of debt are issued to fund a large purchase. Equity firms will then try to improve the financial results and prospects of the company in the hope of reselling the company to another firm or cashing out via an IPO.
Investor Profile
Private equity fund is typically opted by organizations rather than by individuals. Such investment can be really helpful for following groups:
a.Those who want to start up a company
b.Those who want to expand their business
c.Those who want to buy out portion of their parent company
d.Those who want to buy into a company
Hence, private equity funds are generally used to start a business, pay out original owner, make acquisitions or fund organic growth into new markets.
Advantages
Private equity is better way of funding your business than debt capital. For example, if you obtain funds for your business from a lender, lender has a right to receive interest on loan as well as on repayment of capital in spite of success or failure of your business. However, in case, private equity has been invested in your business, the shareholders have a stake in your company and their earning depends upon the profit and growth of your company. Organizations backed by private equity usually grow much faster than other types of businesses, as such organization employs skilled managers and other resources to meet its financial objectives. Many private equity companies’ works with work with other finance providers to put business into right funding plan. Private equity fund managers basically invest capital on behalf of institutional clients and offer higher return on investments to reflect the slightly higher risk of this asset class.
A private equity fund is an investment fund in which capital is raised from retail and institutional investors and such collective private equity funds are used for making investments in various equity securities and to a lesser extent to the debt capital as per the investment strategies associated with private equity firm. Generally, such equity firms often show interest in business showing potential for growth within five years. Firms with growth potential must be able to show an experienced team of individuals having capabilities to achieve business goals within stipulated time.
Private equity capital is not listed on a public stock exchange. The majority of private equity investors are institutional and accredited investors who can commit large sums of money for long periods of time. Many equity firms conduct leveraged buyouts (LBOs), where large amounts of debt are issued to fund a large purchase. Equity firms will then try to improve the financial results and prospects of the company in the hope of reselling the company to another firm or cashing out via an IPO.
