What is Private Equity in Finance?

 

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Private Equity Investment is an alternate mode of investment or financing. It consists of investors and funds that directly invest in private companies or companies that are not listed on any stock exchange. Private equity is similar to venture capital as private equity investors also invest in startups for long-term benefits but private equity investors invest in mature companies as well which the venture capitalists don’t. The fund received from private equity is generally used to expand, acquire, or fund new technology and innovation.


How does it work?

Private equity raises funds both from individuals or institutions; these are limited partners or general partners. These PEs invest in companies to strengthen the company’s balance sheet or to launch its IPO. They also invest in REITs (Real Estate Investment Trusts) and various venture capital funds.

 

Types of Private Equity:

Venture Capital: Venture capital is not so uncommon these days. These are called angel investors as they provide capital to entrepreneurs at various stages of the company’s establishment and growth.

Funds of Funds:

As the name suggests it is a type of funding that invests in other funds like hedge funds or mutual funds. It is also termed as a backdoor entry for an investor for whom the minimum capital requirement in such funds is out of reach.

•           Distressed Funding:

This type of funding is to turn around the fate of the companies that have an underperforming business, assets, or particular units.

•           Leveraged Buyouts:

It is just another nomenclature for a takeover. It is the most popular form of equity funding and is done to revamp the business, finance, and management structure of the company in one way or the other. It can even be done with the thought of reselling it to an interested party for profit or even to conduct an IPO.

•           Real Estate Private Equity:

This type of fund is generally used for commercial real estate and real estate investment trusts (REIT). These require a higher amount of minimum capital for investment in comparison to other types of private equity funds.

 

Merits of Private Equity:

•           One of the most remarkable benefits of PE is the easy access of an optional form of capital that it gives to the entrepreneurs with comparatively very less stress of quarterly performance.

•           PEs also provides an option of re-growth to the delisted companies with new strategies that too away from the grim pressure of public markets.

•           Gives ample time for the company to think of new ways to increase profits and cut losses.

•           It is a more favorable alternative to high-interest loans or public listing.

 

Demerits of Private Equity:

•           Lack of transparency has been one of the most largely raised issues that concern entrepreneurs when it comes to private equity.

•           In private equity you have to lose a major portion of your shareholding in your company as you get more funds as compared to the other options. In addition to the money, you can also lose control of the direction and management of your business.

 

How to approach Private Equity Firms?

Need to find a perfect and best-suited private equity firm. This is genuinely a tedious process but certain firms provide financial assistance to ease this process for you. RPD Financial solutions Pvt. Ltd. Nashik are one such firm. As you need to make a perfect pitch to increase the interest of such firms in your company. Assistance like this will make sure that you go out with a full-proof plan. They make sure that you get the best suitable business investor for business or startup in Nashik or anywhere else in Maharashtra.

These firms make sure that your deal takes care of your interests and saves you from hefty paperwork and tedious lookouts. In short, they make your journey easy.

 

 


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