How does private equity differ from other forms of financing, such as bank debt, hedge funds or becoming publicly listed?
Private equity takes a long-term shareholding in a business with the explicit objective of significantly enhancing its value within a 3-5 year time frame. It also plays an active role in the management and development of the company during that time. It differs in two main ways from other forms of financing: Financing terms: • Private equity firms purchase equity or shares in a business, sharing both the risks and rewards over the long term. Because a private equity firm typically invests in a business for 3-5 years, they take a longer-term view on value creation. Large scale operational expenditure is precisely the type of cost which private equity investors routinely commit to when backing a company, enabling the business to achieve clearly defined growth targets. • Debt financing, typically from a bank, is a loan which has to be repaid. • A publicly-listed company raises capital from a public investor base which has a much shorter-term view on financial returns. Public markets like
