How Does The Private Equity Sector Works?
Private equity is the process of making investments in private companies to make buyouts or own a relevant portion of the company to take control over its execution. Private equity funds in India have been very fruitful for many businesses as they provide great profits and returns if applied rightly. The most important thing before investing in any company is deciding its investment model first. If the model is set right there is a very high chance that the profit is going to come.
The model is nothing but a strategic planning for the future. This may or may not have to change at every stage and also depends upon the situation the company is in. The things which have to be considered before making the investments are:
- The target companies
- The sectors for investment
- The target geographies
- The sectors for investment,
- The Added value to firms
Types of Equity:
Venture Capital: Venture Capital Investors or VCs are the investment firms which generally invest in startups or new ventures. These investments are made keeping the profitable prospect and future of the company in mind. The venture capitalists look for the right product which can make a big business and then help the budding companies, not only with investments but also with the marketing and setting up of their business. With proper guidance, many of the companies have grown up to be some of the largest in the world.
Growth equity: This type of investment in private equity fund is to help existing companies get some more capital in order to increase their business to new verticals. Many companies have a good growing business and want to discover their potential in other sections of business as well, but they lack the capital to establish and run all at once. Therefore growth equity helps them to expand and run multiple businesses simultaneously.
Buyouts and distressed investing: This type of investment is always done in a company which is suffering heavy losses and most of the time is on the verge of bankruptcy. Generally, the firm’s buyout all the shares or at least the major share of the company through equity so as to take complete control of it. The investment is majorly done through loans from the bank that are later paid by the cash outflow from the company and the liquidation of assets in case of bankruptcy.