The Private Equity Example of a Buyout
Private equity firms have a unique approach to capital investment. Rather than focusing on a high profit rate, they take a more rigorous view of costs and then invest the remaining cash flow in smart investments that will grow the company. They also have a heightened sense of fiduciary responsibility. In this article, we will consider the private equity example of a buyout and how the company’s management is responsible for investing the cash.
While early venture capitalists concentrated on expanding established companies, the growth of the industry also attracted many smaller investors. These investors had the financial resources to make the necessary investment decisions. In the early days of venture capital, many investors were wealthy individuals. For example, the Vanderbilt and Whitney families invested in Swedish companies, while the Rockefeller and Warburg families invested in Eastern Air Lines and Douglas Aircraft. Venture capitalists also became increasingly focused on investing in private companies that had big potential, such as the NASDAQ Composite Index, which peaked at 5,048 in March 2000.
Growth equity differs from private-equity deals in several key ways. Unlike traditional venture capital, growth equity firms maintain an active role in the management of portfolio companies. Growth equity firms typically maintain a minority stake in the company. They acquire newly issued shares of the company’s stock, as well as the shares of prior shareholders. Growth equity is typically used in late-stage VC-backed companies where the founders have surrendered significant equity rights in previous funding rounds.… READ MORE ...