Today, private equity and venture capital investments are common and accessible for nearly everyone. For decades, these investments were done by executives and venture capital professionals who had little or no experience investing outside their home country.
Investing is an extremely challenging and high-risk activity that requires a great deal of intellectual horsepower and an almost insatiable appetite for risk. This is especially true for CFOs and financial executives, who are tasked with managing budgets, cash flow, and the company’s liquidity. That’s why many finance and private equity veterans look forward to joining new venture capital and private equity firms. It’s a great way for them to gain new experience and hone their skills. But before you sign up to join a private equity fund or venture capital firm, it’s important to understand the investment environment in which you’ll be operating.
What Is Private Equity?
Private equity is a term that generally refers to investments made by private equity firms in companies that are often smaller than those the investments are made in. Private equity funds join private equity firms to invest in a company’s equity, debt, or both. They typically invest in underperforming companies and need additional capital so that the executives and investors who fund them can make money. Private equity is often used in tandem with private equity funds of funds, which are special purpose funds created to invest in a variety of companies and financial products. Private equity is different from public equity, which can be bought and sold on almost any stock exchange.
Why Invest in Start-ups?
Start-ups are often the first steps in a larger corporate transformation. That’s why private equity firms love them: They’re easy to get involved with, and you can get involved with relatively little capital. They’re also exciting because there’s a lot of potential for profit. Start-ups are generally riskier than established companies. That also means they’re more likely to succeed. Companies that go public after a period of rapid growth rarely keep up the pace of expansion once they do.
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