Private equity and venture capital is finance provided in return for an equity stake in potentially high growth companies. It is behind some of the UK’s best known and most innovative businesses such as Alliance Boots, Centre Parcs, Odeon & UCI Cinemas and Spotify.
Private equity firms typically look to invest majority stakes in underperforming companies that have the potential for high growth. Growth in the businesses is delivered by working with the company’s management team to improve performance and strategic direction, making complimentary investments and driving operational improvements.
Venture capital firms, in contrast, invest in companies in the seed (concept), start-up (within three years of the company’s establishment) and early stages of development. In areas such as clean technology, digital media, life sciences and the internet, venture capitalists invest their capital and expertise to develop new products and technologies.
Private equity and venture capital firms are long-term investors, typically investing in companies for around three to seven years. This means a commitment to building lasting and sustainable value in the businesses they invest in. The only way to realise returns for investors is to sell a business in better shape than when it was acquired. Typically firms will sell their stake in a company by listing on the public markets or selling to a strategic buyer.
Private equity and venture capital firms raise funds to invest from sources such as pension funds, endowments and sovereign wealth funds.
As well as the companies that grow as a result of investment, the key beneficiaries are known as “institutional investors” - the local authority that invests on behalf of its pensioners, the corporate pension fund, the university endowment, or the foundation that relies on high returns to continue operations.
Pensions, and other institutional investors, invest in private equity because they want their investments to outperform the public markets. To find out more about the level of outperformance read our Performance Measurement Survey.
If you are a pension fund trustee or work for an institutional investor visit our “For Institutional Investors” section.
For further information please contact the BVCA:
T +44(0)20 7492 0400
© 2014 BVCA