What is private equity?
Private equity refers to professional investment activities focused on unlisted companies. Private equity investors make investments in both early-stage startups and established, larger businesses. In exchange for their investment, private equity investors receive either a majority or minority stake in the company. The goal of private equity investing is to accelerate the company’s growth. Private equity investors are active owners, and the advantages of this approach compared to other forms of financing include a professional approach to growth and the expertise and contacts that the investors bring to their portfolio companies.
What is private equity?
Private equity investors finance and develop unlisted companies. These investors are experts in fostering growth. If a company is looking to expand, particularly into global markets or prepare for an initial public offering, partnering with a private equity investor can be a valuable step.
What do private equity investors do?
Private equity managers raise funds from a range of sources, including institutional investors like pension funds and insurance groups as well as private investors. They invest these funds in promising companies in return for shares in the company and actively contribute to the growth of their portfolio companies during their ownership. Private equity investors are always temporary owners, and typically sell their ownership interest after a period of 3-7 years, after which the company advances to its next growth stage. This may involve partnering with a larger investor, going public, or becoming part of a larger international corporation.
How does private equity differ from other forms of financing?
Private equity is characterised by professional, active ownership. Beyond financing, private equity investors are directly involved in developing their portfolio companies, often through board work. They contribute to activities like shaping strategies, helping with key recruitments, and fostering international connections.
What is the impact of private equity?
Private equity investors often foster innovation, either by developing traditional industries or backing entirely new technologies. Investors provide capital and expertise for businesses, giving them the tools they needed to grow and prosper. Expanding businesses also often generate new jobs, contributing to economic growth. When the investor sells their stake in a company that has seen growth and increased value, the returns generated benefit pension funds, foundations, and other fund investors.
Private equity terms explained
Venture capital
Venture capital investors invest in startups and hold a minority stake in the company. Companies that have received VC investments include gaming giant Supercell and smart ring company Oura.
Growth
Growth investors make minority investments in more established, often mid-sized growth companies. Companies that have received growth investments include Evondos and Unikie.
Buyout
Buyout investors make majority investments in larger, more established companies. Companies that have grown through buyout investments include Musti & Mirri and Harvia.
Fund Investor
Fund investors are entities that invest in venture capital and private equity funds. Examples of fund investors include large institutional investors, such as pension funds.
Startup
A young, innovative company that usually strives for fast, international growth with a scalable business model. Startups are often backed by venture capital investors.
Growth Company
A company with established business and turnover, but also with potential for future growth. Growth companies are often backed by growth and buyout investors.
