Private Equity (PE) distinguishes from
other types of investments in five major steps.
First, PE professional's active involvement in projects. They
identify, negotiate and structure the transaction, then monitor
and advise the company. Therefore PE firms strongly contribute
to the company's success.
Second, PE invests for a specific time period. Usually a venture
capital or private equity fund has a term around 7 to 13 years.
In first 3 years all investments are supposed to be made and
following years after gathering the success the investments are
sold. Therefore PE manager always plans the exit strategy from
the beginning. Often the transaction documents include the terms
or the outline of PE's contemplated exit strategy.
Third, PE capitalists usually invest in shares privately held.
Plus, one of the most used exit strategy is selling the
portfolio company's stocks into public market.
Fourth, PE demands reasonable return for their investments. They
are not a lender just seeking to have a safe interest yield as
they do not necessitate a bank letter of guarantee for security /
collateral. Rather, they are hopping to share the portfolio
company's success in comparably short period of time.
Fifth, the team. PE prefers highly dedicated and competant