Private Equity and Venture Capital
Private equity providers invest in well-established businesses, by providing finance in exchange for an equity or ownership stake.
Private equity is typically a majority investment, in which the investor buys a controlling stake (more than 50 per cent), although some providers also offer minority investment.
Private equity can work well for both parties. The business receives the investment and expertise they need to grow at pace, while the private equity investor can achieve a good return on their investment if the business is successful.
Private equity is generally suited to more mature businesses; often supporting management buyouts, rather than younger businesses or startups who are better suited to Venture Capital (below) or Angel Finance. Typical private equity investments are where the firm works together with the existing business management team to achieve a specific objective such as rapid growth, expansion into overseas markets, or achieving economies of scale.
Investments are usually over a medium-term (around five years). The private equity provider will ultimately seek an exit through the sale of their equity stake.
Venture capital providers (VCs), on the other hand, provide equity finance to early-stage businesses, alongside expertise and strategic advice. They typically require a position on the board of a company they invest in, and often invest for timescales of four to seven years.
There are five key stages of venture capital, with two additional stages that occur before and after funding. The first stage is usually referred to as the “pre-seed” stage where the business is doing groundwork, developing the business concept, and developing prototypes. VCs can enter at the next stage which is the “seed finance” stage, which provides funding for activities such as market research and product development. The consequent stages, or funding rounds, finance the business through establishing a customer base and building revenue flows. Each new stage builds on the stage before.
The amount a private equity or venture capital firm will invest depends on a number of factors. To learn more about the options, contact your local corporate bank, accountant or tax advisor. You can also visit the British Private Equity and Venture Capital Association (BVCA). Its membership comprises more than 700 firms, including over 325 private equity and venture capital businesses, over 100 institutional investors and more than 200 professional services firms.
Alternately, visit the Business Growth Fund (BGF), an established, independent investment company. The BGF supports earlier stage and established private businesses and smaller listed companies. It is backed by Barclays, HSBC, Lloyds Banking Group, NatWest and Standard Chartered. BGF in Ireland is backed by the Ireland Strategic Investment Fund, AIB, Bank of Ireland and Ulster Bank.