Private Equity and Venture Capital


Often overlooked by small and medium businesses, venture capital remains a private source of funding available at all stages of business life. In France now more than 5000 companies use investments of private equity to fund their operations. There are many others that still refuse to use them for either fear of losing the control of their company or because they do not fully understand how it works.

What is Private Equity? Is it the same thing as venture capital?

Venture capital is a form of private financing just like growth capital, leveraged buyouts and distressed investments. Private equity is given by investors to entrepreneurs that have need for capital. This transaction brings together venture capital in start-up, growth capital to support business growth, leveraged buyouts and distressed capital to provide trouble companies recapitalization though new dynamics.

What is the advantage for the entrepreneur?

The entrepreneur wants to start a business or wishes to develop it but the bank is reluctant to extend credit. Private equity investors may be a valuable aid. With the exception of leveraged buyouts, it allows the company to strengthen its own funds without additional indebtedness or guarantees required. In addition, the company, and credibility, could see its borrowing capacity restored.

Is a private equity investor seen as another partner in the company?

Investors provide funding for the business but in most cases they have no interest of staying for more than it is necessary to get their profits back. The capital investor, as opposed to a regular investor, thinks about the future of the company rather than the about the short term.

Although it is not established at the beginning of their participation, private equity investors do not generally stay longer than seven years. This may vary according to the project and there is not a determined deadline. During the time the investor stays in the company, he or she receives a profit on the basis of his or her share. It is when the shares are sold that profits increase.

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