How to Build A Nest Egg With Private Equity Investing

Picture this, you’re working hard, putting money into savings, investing in various assets and securities, but every year when evaluating your returns it just hasn’t grown much. And if you project out to retirement you see that the growth isn’t even close to hitting the target you need. And what about that dream of retiring early? Is it even possible?

Obviously the strategy isn’t aligned with your goals, so it’s clear that you’ll need to do something dramatically different. The question is what changes need to be made so that your investments deliver the growth that you need?

The truth is that you are not alone and many people, even high income people, are behind in building their nest egg to achieve their target financial goals for the life they really want to live, whether for now or at retirement. The good news is that the strategy to get on track is simple -- higher investment returns on a consistent basis, with risk protection.

In this article, we walk you through 3 key private equity investment strategies that will help you save money fast and put you on target to hit your financial goal.

3 Types of PE Strategies that grow your investment fast

Investing can involve a variety of strategies, but not all strategies are  ideal for all investment circumstances. Therefore, you should be aware of the features of various investment options before deciding on a strategy. Here we discuss 3 types of private equity investments that you can find among the many PE firms in the market.

Strategic Venture Capital

In exchange for owning a stake in target portfolio companies, venture capitalists provide seed funding to these companies because the VC firms believe they have a probability of substantial and fast growth. Venture capitalists typically do not require a majority stake (more than 50%) in the companies they invest in, which can be appealing to many founder-led companies seeking this type of funding. Startups or early stage companies haven't yet proven their ability to turn a profit, but this is exactly why this strategy can be so successful. If these companies follow the prescribed tasks set by the VC firm, there can be a substantial profit in these investments for the firm and its investors. There is also a much greater risk of loss to the VC fund on these deals since they are investing in startups with no track record. For every unicorn company that becomes the next Uber or Facebook, many others fail. This is a high-risk-high-reward business. For these reasons VC funds typically pay higher returns than PE funds. 

Growth Equity Strategy

The second type of private equity investing is growth equity, which is the investment of capital in well-established, stable, growing businesses. Growth equity is typical of growth stage companies, when they are established but require additional funding to grow in a way that capitalizes on the current market and competitive opportunities. Growth equity investments, like venture capital, are made in exchange for company equity, and with growth equity it will also typically be a minority stake. Growth equity investors, unlike venture capitalists, research the company's financial track record, interview clients, and test the product, among a broad range of other evaluation tasks, before deciding if the company is a good investment. The due diligence process is much easier with growth strategy deals than VC deals, simply because there is a track record that can be evaluated. This means that there is far less risk than with VC deals, and accordingly lower returns.

Leveraged Buyouts

Buyouts are a great strategy a firm uses to generate substantial returns in a short period of time. A leveraged buyout or LBO typically occurs with mature companies that are profitable and stable. The due diligence process, as discussed with growth equity deals, is pretty thorough and relatively straightforward with LBOs because there is a track record that can be evaluated. This means that there is far less risk than with VC deals, or even growth equity since growth equity companies are still relatively young. The investment model normally involves buying a controlling interest, if not the entire ownership outright. These are typically structured with a substantial amount of debt financing, which is why it is called a leveraged buyout. The target companies are almost always private companies, but in some cases, a public company is taken private. Either way, as controlling owners, the PE firms use their deep corporate and financial experience to take these businesses to a higher performance level. This type of investment accounts for the majority of funds in the private equity space and for good reason.

Because of the leverage, less cash is required for each deal, thereby boosting the return on invested capital. Both the acquiring and acquired companies' assets can be used as collateral for the loans used to finance these buyouts. The goal of an LBO is to transfer control of the company to seasoned strategists with the right expertise for a period of time that will allow them to improve the company’s performance and profitability, to achieve superior returns on investment.

Since the risk is far less than with VC deals, the returns on LBOs are typically less than what is available with VC investments. However, there are exceptions to everything. One of the highest paying PE firms in the market uses the LBO strategy.

LBO’s with GenX Capital Group

At GenX Capital, we focus primarily on leveraged buyouts because of their ability to generate high returns with low risk. However, we outperform all other PE firms we know of with our Velocity3X fund. At the same time we offer higher risk protection, and a payout in half the time of most PE investments. Our Velocity3X fund is designed to triple your investment in 4 years.