Private Equity Investing: A Beginners Guide

There is so much information about the growing popularity of investing but not many of us know where or how to start. If you are a beginner, it might feel overwhelming but there is a simple strategy you can follow. Decide on the amount you will invest and the risk you can take. Then set timelines for your goals and estimate the amount of returns you expect on the investment. The sooner you start, the higher your returns, thanks to compound earnings, which means the investment will generate a return on return. In this blog, we take you through private equity investing and understand the different types.

Who Should Invest In Private Equity?

Private equity can be tedious and confusing. It starts from sourcing funds to investing and then waiting for the profits for as long as a decade. So, high net worth individuals who have the funds to invest a large amount and hold on for a long duration are ideal candidates for private equity funds. But nothing comes without risks and the exit from a private equity fund can be time consuming. 

Some benefits of investing in private equity are:

• Private equity can be a great source of debt-free funds and you have an opportunity of making exponential profits.
• The funds support mature companies and startups, so the extent of the reach is massive and you can enter new markets with huge potential. 
• PE investments are carried out after due diligence and the profits can vary but the chances of losing it all are minimal. 
• PE investments are large funds and there is a structure and a team that drives them. This is where private equity funds come into play. 

Types Of Private Equity Funds

Depending on the investment size and the company’s growth stage, private equity investments can be categorized as below: 

• Venture capital 
  The first category of equity fund focuses on start-ups. They are granted in phases and increase with each round. The start-up is expected to deliver the promised results in each round.
• Seed
  The initial round of external funding for a start-up is the seed round. This is the money that it needs for the basic operations of the business and includes activities like market research. It usually ranges from $250K to $2M.
• Series A
  The capital granted to startups that already have a prototype and initial adopters with a business plan is known as Series A funding. It ranges from $2M to $10M in amount. 
• Series B
  Series B is the growth phase of the startup and helps with production expansion, entering new markets, strengthens working capital, builds team strength etc. The investments range from $7M to tens of millions, depending on the company size. 
• Series C
  Series C is an optional round. It requires massive investment that could run in the range of hundreds of millions. It is often required for acquisition, globalization, etc. 
• Growth capital
  Growth capital is ideal for more mature companies. They are small investments used for the expansion into new markets or for an acquisition.
• Buyout
  A buyout is the new acquisition of another company. The fund combines equity and debt with an aim that the returns will surpass expenses of the debt component. 90% of the investment is by a PE firm and the firm undertaking the buyout will provide the balance.
• Others
  There are several other types of private equity investments including fund of funds, real estate as well as mezzanine finance. Fund of funds invests in other PE funds, real estate investment depends on the risk and return probability and mezzanine finance is in the form of subordinated warrants, debts and equity. 

Now that you are aware of the advantages of private equity investments, get started on your investing journey and find out how to go about it at GenX Capital. 

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