Full Definition
Private equity (PE) refers to investment funds that acquire equity stakes in private companies or take public companies private. Unlike venture capital, which focuses on early-stage high-growth startups, PE firms typically invest in more mature, established businesses with proven cash flows.
PE vs Venture Capital
- Stage: PE invests in mature companies; VC invests in early-stage startups
- Control: PE often acquires majority or full ownership; VC takes minority stakes
- Strategy: PE improves operations for resale; VC bets on growth potential
- Leverage: PE often uses debt (leveraged buyouts); VC uses equity only
- Returns: PE targets 15-25% IRR; VC targets 25%+ with power-law distribution
Real-World Example
A PE firm acquires a profitable e-commerce company for $100M, improves margins and operations over 5 years, then sells it for $250M.
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Related Terms
A form of private equity financing provided by firms to startups with high growth potential.
When one company purchases another company, either by buying its assets or its equity.
The phase where a startup has proven product-market fit and focuses on rapidly scaling revenue and operations.
A planned approach for founders and investors to realize returns on their investment in a company.
An investor who contributes capital to a venture fund but does not participate in day-to-day management.
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