Private capital is a type of investment in a commodity that can be freely traded on the exchange. Private equity is all kinds, including mezzanine capital, angel investment, LBO, venture capital, etc.
Private Equity: How It Works
Private equity funds are organized as limited partnerships. These limited partnerships are characterized by a private equity firm, sponsored controlled within Association. The private equity investment to encourage people and institutions invest in private equity funds. Therefore, the limited partner investors, even if the partner to control the management company. When the General Partner believes that a particular investment is possible, requires the Parties to limit the amount that guarantees to invest. The selected general partner of the partnership portfolio, while the promoters of> Investment funds. The sponsor or investors, which in turn profits from the sale, merger, recapitalization or initial public offering.
Categories of Private Equity
Private equity investment has many types of controls, but the most important are the growth capital, angel investment, venture capital and leveraged buyouts.
Benefits of Private Equity:
1) investing the fund's capital is of fundamental importancefor sector growth and development of innovative products.
2) The private-equity funds used to increase working capital.
3) the private equity funds are useful when trying to facilitate mergers and acquisitions.
4) private equity funds to strengthen an inventory of a company and help them develop.
5) the private equity funds are a great way to raise money for small businesses andthe creation of new businesses that will not be able to loan or grant.
6) The general partner manages the business, so can not sponsor a partner or invest in the management of the company.
Disadvantages of private equity financing:
In addition to the benefits, private equity funds have some drawbacks.
1) Since the investment of private capital are not open for investment in the stock market, which wants to sell sharesPrivate equity has difficulty finding a buyer.
2) There are limits on the transfer of certain types of private equity.
3) Most people can not afford the heavy investment in a private placement is necessary.
Investment options are a good investment for venture capital firms and other organizations, long-term investments in projects that generate returns well. But it is not open to the public and non-commercialconvenient for investors and minors. Create a private equity fund is a good choice for small business owners, has not been able to raise funds for its start-up or a long walk to another agency.