Private Equity

[ppesimon]

In times of uncertainty and high volatility in international stock markets, private equity has become the topic of the hour. Investors expect superior returns from investments in privately held companies. However, not everybody who talks about private equity knows and understands what challenging but rewarding processes are involved.

A short survey based on venture capitalism.

Technological Achievements
Private equity is known mainly in relation to start-up and venture companies. These are companies at an early stage of development at which the future success of products or services offered to consumers is unclear. Think of Microsoft, Google, or Skype: In their beginnings, these companies’ future performances were ambiguous as they offered new technologies that first had to find their customers.
Since investments in seed-staged companies often bear an above-average risk, higher profits are later returned to shareholders once the companies are operating successfully. This is why private equity has become popular among renowned and experienced investors.

Exclusive Investments
It lies in the very nature of venture and seed-staged companies that they are not listed on a stock exchange market. Thus, they require financing aside from a stock exchange; a less information efficient capital market which is established by bilateral contracting.

For Big Investors Only
As venture and seed-stage financing is based on bilateral contracts, this form of investment is generally reserved for big investors, such as pension funds. Moreover, only these are in the position to diversify risks over geography and different industries. Usually a fund will participate in the financing of a privately held company.

PE For Smaller Investors
For few years, several private equity funds have been listed at a stock market while making it possible for small investors to invest in seed-staged and venture companies. Many investors consider PE investments a profound alternative or complement to their prior investment strategy.
The panel of PPE (Prosperous Private Equity) offers an overview of funds that went public.