What is private equity? Private equity is a common term used to describe the buying and selling of businesses, usually structured as a limited partnership, where the owner does not have the rights and responsibilities normally associated with an investment.
When people speak about private equity, they are referring to the sale of a business for an amount greater than the value of the investment. Some people use private equity in a wider sense, to refer to any type of business.
There are many different types of private equity, each having a slightly different definition and different advantages. The following describes the major types of private equity.
- Private Equity – The purchase of an existing business by a firm with the goal of turning it into a profitable, highly leveraged company.
- The issuance of an Obligation Note, commonly known as a Business Combination Note, to a third party who purchases all or a part of the assets of a business, such as purchasing assets like land, buildings, and machinery, which is then owned by the owner.
- Common Equity – This includes any type of equity, including debt. This type of equity may be used to finance investments, but is typically not included in the purchase of a business.
- Equity Pool – In this arrangement, investors pool together their money into one fund. This is usually used to finance a business acquisition.
- Debt Capital – This is typically referred to as an unsecured loan but is not considered to be such by most creditors. It may be used to obtain a loan or credit line, however, because of the higher interest rates, it is most often used to make acquisitions and pay off debt.
- Private Equity – This type of capital is not typically backed by a borrower and is generally secured by assets that are owned by the investor. One example of this would be a company that uses its equipment to make its products. Other examples include the purchase of machinery from a manufacturer and selling it at a discount.
- Publicly-Owned Equity – This is commonly called an open-end trust, or sometimes an open-end mutual fund, where the investor shares in the ownership of the business and profits from its performance.
- Private Equity – This is when the funds or equity is obtained by a non-shareholder from a venture capital firm or a private funding source. It is considered to be a very risky type of capital because of the fact that there is no guarantee that the company will make a profit.
- Publicly-Owned Equity – This is similar to private equity, except that it is held by a private shareholder. Private shareholders in the US typically have limited voting rights.
- Venture Capital – This is a type of private equity where companies are formed from private investors who form a partnership to make acquisitions and investments. Private funding sources usually provide funding through loans.
- Private Investment – Private investments are often made by companies, especially if they have not made enough money to be able to issue debt, but want to take a risk on the business. These types of investments are usually done to raise money or generate growth.
- Private Equity Capitalist – A private investor that has acquired a company for a significant amount of money or has a long-standing relationship with that company. These investors are able to purchase companies for more than the market price, because they are willing to take more risk than other investors.
- Private Equity Capitalist – Also known as Private Placements – This type of investment is when a company applies for an investment from a private investor. An investment is usually made based on the company’s stock price, rather than the underlying assets or market value. Private placements also commonly involve debt, and interest rates.
If you need a little extra help with understanding private equity investment, consider using a private equity finance company. These companies are specifically trained to help you understand the intricacies of this type of investment, and can give you advice and resources that will help you find the right investment.