WHAT IS PRIVATE EQUITY FUND?

Ans:-
Private Equity fund generally invest in companies that are not listed on Public Exchanges (Like:- Startups or Closely held companies), or invest in public companies with the intend to take them private.

[The company in which private equity firm is investing is often called Portfolio company]

💢 Structure of Private Equity Firm:-

Private equity firm typically structured as Limited Liability Partnership (LLP) in which:-

♦ Investors:- investors are limited partners.

♦ Private equity firm:- Managers of funds are General partners, here managers charge management fee and incentive fees to manage a PE Fund. Fees generally range between 1% to 3% of Committed Capital.

[NOTE:- Committed Capital:- it is the amount that the limited partners (i.e.:- Investors) have agreed to provide to the PE Fund.]

💢 TYPE OF PRIVATE EQUITY FUND:-

♦ Venture Capital.
♦ Buy- Out fund (Leverage Buy-Out Fund, Management Buy-Out Fund).
♦ Development Capital investment.
♦ Distressed Investment.

What is Venture Capital?

Ans:-

It is a type of financing. here investors commonly give funds to startups and small business. investors invests its money in young & unproven entity from which they believe they can get good return. for investors, the risk can be very high as well as scope of high return.

Investment can be done in various stages, these stages are as follow:-

Stage 1:- Formative Stage:-

Idea Generation Stage:-At this stage fund may be used to transform idea into a business plan and assess market potential. The amount provided at this stage, typically small and The amount provider is generally individual (often family, friend) called Angel or Angel Investors.

Seed Capital Investing:-At this stage fund may be used for Product Development and Market Research. This point is generally the first stage at which Venture Capital Fund Invest.

Early Stage Investing:- At this stage funds provided to companies moving towards operation but before starting commercial production and sales. financing at this stage may be provided to initiate commercial production and sales.

Stage 2:- Later-stage Financing:-

At this stage investment by VC Fund for initial expansion of a company already producing and selling a product, such expansion is like:- Physical plant expansion, Product improvement, or a major marketing campaign.

Stage 3:- Mezzanine Stage Financing:-

At this stage funds provided to prepare a company to go public (i.e.:- IPO:- Initial public offering).

To make an investment, a Venture Capitalist needs to be convinced that the portfolio company's management team is competent and has a solid business plan with strong prospect for growth and development.

What is Buy-Out Fund?

Ans:-

Buy-out fund :-

A buy-out fund takes money from investors and use it to buy other companies. Buy-out occurs when a Private equity firm acquire more than 50% of the target company's stake, leading to a change of control.

Buy-out sometimes referred to "Going Private". Means:- Private equity firm use inventors fund to take acquisition of Publicly traded company, which it intends to make Private (Delisting of Public company).

It generally intends to improve their operations and cut costs, than resell the company to other investors on public market by bringing its fresh IPO.

♦ Leverage Buy-Out (LBO):-

LBO use large amount of Borrowed money(loan) to purchase other company.

In a leverage Buy-Out deal, a private Equity firm may invests Equity (its own money) representing 30%to 35% of Purchase price and raise the rest of the purchase amount by borrowing money (loan) or by issuing Debt security (in debt market).

♦ Management Buy-Out (MBO):-

Management buy-out is done by Existing management of a company in which existing management with PE Fund acquire a large part or all, of their own company or the business they manage.
The main reason for a management buy out is that a company can go private in an effort to streamline operations and improve profitability.

Thank you, Stay happy & Safe.

What is Private Equity Fund?, What is Venture Capital? & What is Buy-Out Fund?