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by Rajen Kumar

No Escaping Social Media

Running a magazine concentrating on issues of small and medium enterprises and managing with limited resources is a like living life on the edge. In this rush of meeting deadlines,...

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Apr 2012

EMRC, Brussels Associates with SME WORLD as its New Media Partner

EMRC has promoted business partnerships with the developing world and has organised dozens of business forums in key decision-making cities, such as Amsterdam, Rome,...

Knowledge Kit

Venture Capital, Private equity, Special Purpose Vehicle, Working Capital – SME Knowledge Kit

Feb 2009

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Venture Capital

Venture capital (also known as VC or Venture) is a type of private equity capital typically provided to early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made as cash in exchange for shares in the invested company.

Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms.

A venture capitalist (also known as a VC) is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to their investments. A venture capital fund refers to a pooled investment vehicle (often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.

Venture capital is most attractive for new companies with limited operating history that are too small to raise capital in the public markets and are too immature to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions.

Private equity

Private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange

Types of private equity

Private equity investments can be divided into the following categories:

• Leveraged buyout, LBO or simply Buyout: refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these transactions are typically more mature and generate operating cash flows.

• Growth capital: refers to equity investments, most often minority investments, in more mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.

• Venture capital:

Other strategies

Other strategies that can be considered private equity or a close adjacent market include:

• Distressed or Special situations: can refer to investments in equity or debt securities of a distressed company, or a company where value can be unlocked as a result of a one-time opportunity (e.g., a change in government regulations or market dislocation). These categories can refer to a number of strategies, some of which straddle the definition of private equity.

• Mezzanine capital: refers to subordinated debt or preferred equity securities that often represent the most junior portion of a company's capital structure that is senior to the company's common equity.

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1 Comments >>

ANISH SHAH

05 Aug 2011 (08:38:40)

Nice site. I would like to know more about financing needs of SMEs and private equity in SMEs.

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