What do you mean by Venture Capitla and Private Equity?
Answer Posted / chandu_c4u
venture capital:Financing for new businesses. In other
words, money provided by investors to startup firms and
small businesses with perceived, long-term growth
potential. This is a very important source of funding for
startups that do not have access to capital markets. It
typically entails high risk for the investor, but it has
the potential for above-average returns.
Venture capital can also include managerial and technical
expertise. Most venture capital comes from a group of
wealthy investors, investment banks and other financial
institutions that pool such investments or partnerships.
This form of raising capital is popular among new
companies, or ventures, with limited operating history, who
cannot raise funds through a debt issue. The downside for
entrepreneurs is that venture capitalists usually get a say
in company decisions, in addition to a portion of the equity
Private equity:Equity capital that is not quoted on a
public exchange. Private equity consists of investors and
funds that make investments directly into private companies
or conduct buyouts of public companies that result in a
delisting of public equity. Capital for private equity is
raised from retail and institutional investors, and can be
used to fund new technologies, expand working capital
within an owned company, make acquisitions, or to
strengthen a balance sheet.
The majority of private equity consists of institutional
investors and accredited investors who can commit large
sums of money for long periods of time. Private equity
investments often demand long holding periods to allow for
a turnaround of a distressed company or a liquidity event
such as an IPO or sale to a public company
The size of the private equity market has grown steadily
since the 1970s. Private equity firms will sometimes pool
funds together to take very large public companies private.
There were several private equity purchases in excess of
$30 billion during 2006 and 2007 alone.
Many private equity firms conduct what are known as
leveraged buyouts (LBOs) where large amounts of debt are
issued to fund a large purchase. Private equity firms will
then try to improve the financial results and prospects of
the company in the hopes of re-selling the company to
another firm or cashing out via an IPO.
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