Types of Private Equity Firms

One thing to keep in mind when targeting private equity firms for potential opportunities is that each firm has a selected strategy, which ultimately dictates who their ideal candidate will be.  This discussion will attempt to summarize the general types of private equity firms, which may help candidates select which will be the best fit for them.

• Venture Capital—Venture capital is a broad category of private equity that defines to equity investments made in early stage companies, for the launch of a start-up company, early stage business, or expansion-stage business. Venture capital is typically found in the treatment of technology, innovative marketing ideas and new products that do not have a proven track record or stable cash flow.
• Growth Capital—Growth capital firms make minority equity investments in mature companies that are looking for capital to expand operations, enter new markets or finance major acquisitions.  Companies that need growth capital often are attempting to finance a significant event in their operating history.
• Leverage Buyout Firms—Leveraged buyout firms make equity investments in a company, business unit or business assets with the goal of acquiring the company from the current owners, typically with the use of debt.  The company involved is usually mature and generates stable cash flows.
• Mezzanine Debt—Mezzanine debt refers to subordinated debt or preferred securities that typically represent the junior positions in a company’s capital structure, but is senior to the company’s common equity.  This financing is often used by private equity investors to reduce the equity required to finance a leveraged buyout or growth transaction.
• Distressed Situations—Equity investments in distressed companies involve the purchase of securities of companies that are in or near bankruptcy.  Firms in this area acquire debt securities in these companies with the hope of obtaining control of the company when it emerges from bankruptcy.

Each strategy mentioned above requires a specific set of skills and personality type. As a result, it is critical that potential candidates take the time to research a private equity firm’s specific strategy and determine whether they would be a fit within the organization.