Private Equity is a term that refers to private capital that the enterprise can use as one way of financing its activities, if it doesn’t have sufficient funds or can’t or does not want to raise funds in any other way in the capital and money market. Private Equity in the financial market is offered by private funds and investors who want to evaluate their available funds in companies with growth potential. Private Equity is not listed on the stock exchange, it is usually an investment into non-publicly traded companies for which an investor acquires a share in the capital of the company.
The concept of Private Equity includes different variants of private investment:
- Purchase by corporate management (buy-out)
- Purchase by external management (buy-in)
- Venture capital
What is for and how to get private equity in practice?
Obtaining funds through Private Equity typically use small or medium-sized enterprises as one of the tools for the expansion of their working capital or their own financing (usually development, development projects) in the absence of equity and credit resources. For enterprises, this is one of the financing options of usually innovative projects with the potential for rapid growth. Private Equity is usually inserted into the enterprise through a fund in a combination of investment into the capital and loan. Private Equity Investment horizon is between 2 and 7 years. Then sale of the share follows (Private Equity Exit) to original owners, or issue on a stock exchange (IPO).
Decision on the use of Private Equity is beyond the jurisdiction of the Financial Director (CFO) and takes place normally at the level of owners. This form of investment is one of the more risky, the investor expects a big return on capital employed (20-30%).