➢ Venture Capital relies heavily on equity f return targets than buyouts
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Special Situations
➢ Investment is supplied by specialized Turnaround Funds (TF) for target firms that have defaulted on their outstanding loans
➢ General size of $2 - $15 million ➢ IPO or Sale expected/feasible in near term ➢ Original investors may achieve some liquidity ➢ Because the risk is generally lower and the
➢ Angel capital is an important source of funding
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Venture Capital - Late Stage
➢ Firms with more certain business models
▪ Proven technology and market ▪ Profitable and need expansion capital
➢ The smallest type is the entrepreneur who needs the financing to conduct initial research and development
➢ The most mature type are those firms that are starting to turn profits but need capital for expansion
➢ Buyouts rely heavily on debt financing to finance most of the purchase price
➢ Venture Capital focus on high growth industries with riskier investment profile than buyouts
Private Equity Investing
Mehmet I. Budak
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What is Private Equity?
➢ Investment strategy that involves the purchase of equity or equity linked securities in a company
liquidity higher, later-stage investments require lower returns than early-stage investments
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Leveraged Buyouts vs. Venture Capital
➢ Buyouts focus on mature companies with stable or sustainable growth profile
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Private Equity Investment Strategies
➢ Leveraged Buyouts ➢ Venture Capital (early vs. late stage) ➢ Special Situations (i.e. distressed) ➢ Mezzanine ➢ Secondary Purchases ➢ Fund of Funds
➢ Investment is made through a negotiated process ➢ By sophisticated investors with financial and
operating expertise ➢ The goal is to acquire undervalued or “promising”
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Venture Capital - Early Stage
➢ Firms with substantial risk of failure - business models and marketing approach are yet to be proved
➢ Small and illiquid investments with size of $500k - $2 million
manufacturing industries ➢ Typically have assets to borrow against and
access to bank loans ➢ Seek private equity to effect a change in
ownership, finance an expansion or restructure
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Leveraged Buyouts
➢ Established firms with track records, stable cash flows and stable growth rates
➢ Annual revenues of $25 - $500 million ➢ Typically in basic retail, transportation and
➢ TFs receive controlling interests, with former owners making up the minority interest
assets and realize profits in 3-5 years after the acquisition ➢ Information asymmetry and inefficiencies are important factors
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Alternative Investments