Introduction to private equity
Private equity consists of investments in unlisted companies or the buyout of listed companies where the ownership commitment is active but limited in time. Private equity, in a nutshell, can be divided between buyout and venture capital related investments as well as investments made by business angels.
Illustration of private equity
Source: Swedish Private Equity & Venture Capital Association (Svenska Risk kapitalföreningen)
Buyout implies investments in existing, mature companies, for example through the purchase of a division from a large group or the buyout of a listed company. The portfolio companies in the buyout-related funds normally have good cash flows. Venture capital covers investments in small and medium-sized growth companies that are in the seed, start-up or expansion phases, often with negative or weak cash flows. Private persons who invest in companies without any own family connection are called business angels who, unlike other private investors, are expected to have an active ownership commitment. A common denominator for the various categories is that investments are made in companies where the growth and/or profitability potential are deemed to be good.1)
Phases of a company
Source: Swedish Private Equity & Venture Capital Association (Svenska Risk kapitalföreningen)