The Fundamentals of Private Equity


Private equity is medium to long-term finance offered in response for an equity stake in possibly high growth unquoted companies. Private equity is a comprehensive word which usually refers to any sort of non-public Ownership Equity securities.

Private Equity is a technique by which companies can be possessed and fresh capital can be elevated for investment. Companies can be owned by families or entrepreneur or the government. They can be listed on stock exchanges or, they can be equity firms. Like any other company, equities also may be large or small. Most equity investments are for SMEs i.e. small to medium enterprises. Investment in equity is impending as a great wealth management strategy for individuals and businesses with a high net worth. Even though private equity firms provide funds needed to run the business like as venture capitalists, there are some major differences.

  • Private Equity comprises of equity securities in business entities that are not traded publicly on a stock exchange.
  • It invests with the objective of making considerable returns on their investments. Generally the private equity firms invest in well-established, mature public companies where any chance of fatalities for a long term investment is close to no one.
  • Private Equity firms tend to buy large stakes in a company that can be even 100% unlike the venture capitalists

Apart from these things, a private equity firm places in large investments which usually manages hundreds of millions dollars and it also combines equity as well as debt. Thus, it can be said that private equity firms have a critical role in moving the business wheel. They offer businesses with funds which they need to keep expanding or moving themselves without any need to visit banks for costly loans or to raise money at stock exchanges. Venture capital funds offer the early stage businesses and startups with vital financial support.

Advantages of Private Equity Funds:

  • It can be utilized to expand working capital.
  • It is beneficial when it comes to easing acquisitions and mergers.
  • It is a great way to get funds for start-ups and small businesses that have not received grants or loans
  • Funds received via private equity are vital for the growth of industry and the growth of innovative products.

Hence, private equity funds are excellent investment choices for organizations in search of long-term investment in projects that will bring in great returns.

Robert Stefanowski is a senior financial leader with more than two decades of experience in Private Equity and Corporate Finance. As of now, he is working as CEO in DFC Global, A Lone Star Company and has been working as Managing Partner and Chairman of Asia and the Americas for 3i Group plc. He has vast knowledge about private equity and says that forming a private equity fund is a perfect option for small business owners who have not been able to source funds for their long running business or start-ups from any other source.

Robert Stefanowski has completed MBA in Finance from Cornell University and is a member of the adjunct faculty at Imperial College, Cambridge University and London Business School.