GETTING FAMILIAR WITH PRIVATE EQUITY STRATEGIES

Private Equity is an asset-class made up of debt and equity securities to purchase private companies or public companies to be converted private after a transaction. Common strategies used by Private Equity Groups are:

  1. Venture Capital (VC) focuses in early stage companies. Venture Capital firms invest in companies with promising growth and attractive exit horizon. 
  2. Growth Equity/Capital is a later stage financing strategy applied to companies with track-records, proven models, and viable concepts. Growth capital is injected in companies looking to grow and expand operations as well as market presence.
  3. Mezzanine debt financing is a subordinated debt taken by a company without offering collateral. This type of financing gives the lender the right to convert the debt into ownership stake should the borrower fails to meet his obligation. This type of financing is often represented in buyouts and acquisitions.
  4. Royalty-Based Financing is an alternative to traditional debt and equity financing. This financing strategy provides funding in exchange for a fixed percentage of a company's future earnings. The payments are based on revenue performance - the obligation is said complete once the payments have reached a pre-determined cap. 
  5. Leveraged Buyout (LBO) represents a significant amount of capital borrowed to acquire a target. The ideology behind Leveraged buyout is generating a higher investment return to outweigh the interest paid on the debt.
  6. Fund-of-Funds (FOF) diversifies risks by investing in various Private Equity funds. 
  7. Special Situations invest in distressed companies in need of restructuring or turnaround expertise. 
  8. Real Estate focuses on risky real estate investments using debt and equity. 
  9. Infrastructure investments focus on public assets such as bridges, airports, public transportations, and facilities. This strategy is popular in emerging markets. 
Romain Ly