Tyler Tysdal – Private Equity Funds Explained
After last month’s piece around business investment vehicles there seemed to be a little bit of confusion around private equity and many of you have been getting in touch to find out more. o help clear this up we have industry and investment expert Tyler Tysdal on board, who has spent his career in all forms of investment from analyst to fund manager, private investor to fund advisor. When it comes to investment there is almost nothing that Tyler doesn’t know, making him the perfect person for the job. Let’s take a look then at the different types of private equity that exist, and how each operates.
Venture Capital
Technically speaking venture capital falls under the umbrella of private equity but it is usually discussed as being a separate form of investment. VC funds look to buy low stakes in new businesses such as a start-up and then seek to use financial backing and experience to impact opportunities and help the business to reach its goals. Usually, the state of investment will be early and the business types will be those that are in rapid growth industries. This is a relatively high-risk strategy with a simple goal, invest, grow and then sell the valuable stake and share profits amongst investors.
Leveraged Buyouts
This is the most common private equity vehicle which you are likely to see and leveraged buyouts are seen as a lower risk strategy. PE funds will look to take full control of a struggling company, using the pool of funds which it has along with borrowed money. Once they have control they will look to strip assets, restructure the management team, streamline the employee structure and find ways and opportunities that it can use to increase the value of the business. Once this is completed and the value rises, the PE fund will then look to sell the business in its entirety, repay any money which has been borrowed and then share out the profits amongst its investors. There is no restriction on which types of industries these funds will invest in, as long as the due diligence suggests that the business is worthwhile and can be turned around quickly.
Growth Equity
Growth equity sits somewhere between later-stage venture capital investment and leveraged buyout, and it involves a fund offering financial support for a business, which is looking for growth, for a sizable but not controlling stake in the business. This growth may be organic or it could be done using mergers and acquisitions. The growth equity fund will look at this as a short term investment and once growth is achieved it will sell off the stake and spread the profits amongst its investors.
There are of course lots of differences between these three investment funds, from the stage of investment, the height of the risk and the types of industries, which are being invested into, not to mention the stake which the fund will look to get in return for its investment.
Boris Dzhingarov graduated UNWE with a major in marketing. He is the founder of ESBO ltd a brand mentioning company. He is also passionate about meditation and healthy living. You can find articles on such topics at his spiritual blog Dzhingarov.com.