Private equity & Venture capital
Private equity (PE)
-
PE investments are made in small and medium companies that are already operating as opposed to venture capital which invests in startup businesses.
-
Usually, the target companies must have a high growth potential to expand rapidly.
-
Medium- or long-term PE investments are usually given in exchange for a portion of the shares of the company.
-
PE funds also closely cooperate with the company by appointing experienced professionals to its management team and its board of directors.
-
Representatives of a PE fund work hand in hand with the company’s management team.
-
The company that restructures its management team and processes because of a PE fund is able to continue growing in an assured manner even if the fund sells its share of the company.
-
Usually, the duration of PE investments in companies is approximately 4-7 years.
Venture capital (VC)
-
The main difference between venture capital and private equity is the age of the company. VC funds invest in startup companies and companies that are in the process of becoming established and which are not necessarily profitable but have a strong growth potential due to the nature of their business.
-
Startups usually do not meet the requirements set by finance institutions for granting loans although they may have excellent business ideas. The beginning of their business would be impossible without VC funds.
-
VC investments are beneficial to companies for a number of reasons. It is probably the only way to gain the financial capability to achieve the company’s goals. Depending on the nature of the company, production is strengthened, sales operations and marketing are improved, new products are developed or created and additions to the company’s team are provided if needed.
-
VC funds take a portion of the shares of the company, usually, in cooperation with other investments or funds. Startup businesses usually receive financing in stages: A, B, and C. This means that financing is provided to a business as it grows gradually.
-
Venture capital funds provide not only the necessary funding to companies but also business experience, skills, and contacts that help develop and grow the business.