Tyler Tysdal has spent his life in the world of business investment, he is a fund manager currently but throughout his career he has been an investor as well as someone who manages investments. IT is for this reason that we caught up with Tyler to ask him about some of the most common questions which we get here, mainly around private equity. Now let us best answer those common questions which you guys ahem been sending us, with Tyler at the helm.
What is Private Equity?
Private equity is an investment vehicle which sees large funds invest capital in a business which needs help. These established businesses may be looking for capital so that it can seek growth and an expansion, or they may be in difficulties and that is why they are trying to raise capital. Private equity investment companies both inject this capital and impact opportunities using their experience and their business knowledge.
Why Can’t Companies Borrow Money?
A well established company which needs money could certainly borrow money from a bank or sell shares to raise funds, but the money is not only what they are looking for. These businesses also want someone to support them in their efforts and this is why they will usually place someone from the investment team on their board.
Is This the Same As Venture Capital?
There is a common misconception that private equity is the same venture capital but there are some key differences between the two. The main difference is that venture capital is the backing which is given to a young company like a start-up, rather than investing in an already established business. There is bigger risk involved in venture capital and the percentage which the investment can yield is much smaller than when investing in a business which is established.
What Is The End Game?
Most private equity firms will look to inject cash in a business and help to run it, playing a key role in the decision making process. The end game for these investment companies is to eventually sell their share in the company for a profit, which will then be shared amongst the other investors. Occasionally a private equity company may wish to to buy out a division of a company 100%, especially if it isn’t working for the business, but generally the end game is to get in, improve and then get out for a profit.
Where Does The Money Come From?
Most of the money from private equity firms comes form high wealth individuals but in the main the cash coms from savings accounts and pension funds from the likes of teachers, police and fire fighters. These high volume funds make the perfect source of cash for these private equity firms and the low risk strategy is why they are able to use it, because they almost always help that fund to grow.
