The concept of private equity is a type of financial activity that consists of the purchase by an entity specialized in investment capital of another company with high growth potential in exchange for controlling a majority percentage of its actions. In this way, it would become the main owner of the company momentarily, since the objective of the new managers is to proceed with its sale.
The investment maintenance period varies according to the success of the activity, since the main purpose of this acquisition is not the ownership of the shares but the revalorización and achieving profitability in the operation.
The definition of Private equity could be translated into Spanish as investment capital. This concept is sometimes confused with that of Venture Capital, which is considered a sub-element of Private equity.
Differences between Private equity and Venture capital
The main difference between the two terms lies in the percentage of profit. Private Equity funds are confident of achieving a return on investment of 40% compared to 20% for Venture Capital.
- Type of company: Private Equities invest in companies of all kinds, while Venture Capitals focus on those in the technological field.
- Investment capital: in the case of Private Equity, the invested figures are higher than those of Venture Capital, normally exceeding 100 million euros.
- Purchase percentage: Private Equities acquire a majority percentage or all of the shares, compared to the maximum 30% of Venture Capital funds.
In investment capital, the entry of capital is not done through a capital increase, but is done through the purchase of shares in the company from the current managers to become majority owners, in many cases due to inheritance problems in family businesses or due to differences between the heads of large business conglomerates.
Discover all the information you need about the Private Equity and their characteristics.