What is private equity?
Thuisbezorgd.nl, Marlies Dekkers, Lucas Bols, Johma, Action: you'll recognize many of these names, but did you know that all these companies were financed with private equity capital, that means with capital from an investment company? Private equity and venture capital firms have a larger share in the economy than you might expect: in the Netherlands, about 1,400 businesses with a total of 380,000 employees have private equity or venture capital firms as shareholders. The combined turnover of these businesses: 87 billion euros, equal to 14% of the gross domestic product. But what does private equity entail, and how do private equity and venture capital firms work?
Private equity is risicodragend vermogen voor de financiering van niet-beursgenoteerde ondernemingen, zoals familiebedrijven of bedrijven die worden overgenomen door het management. Ook starters en snelgroeiende bedrijven vallen hieronder. In dat geval is er sprake van venture capital.
Private equity and venture capital firms are the most important providers of this type of funding. The minimum investment is always 250,000 euros. Regional Development Funds tend to invest smaller amounts.
A private equity or venture capital firm acquires a share in an enterprise that it expects will be worth more in the future. The firm can actively contribute to this by participating in the business. The firm employs its knowledge, experience and network to help the entrepreneur take the enterprise to the next level. Private equity and venture capital firms are often specialised in certain phases or sectors.
Situations in which a business could look for a private equity or venture capital firm as an investor include succession planning, demergers, growth ambition or diversification.
Research has shown that after an investment by a private equity or venture capital firm, a majority of businesses see growth in terms of turnover, employment and profit. Most of them also start investing more in marketing and research & development. Cooperation with a private equity or venture capital firm lasts for an average of five years.
What is private equity useful for? – Types of funding
There are various situations in which a need for private equity funding may arise.
The most common situations are:
- the start of a business (i.e. venture capital);
- funding of the growth of your business, e.g. through internationalisation or acquisitions;
- demerger of a business or business unit, a buyout. This can occur when a unit no longer fits the business strategy. In that case, the current management may take over part of the business;
- continuation of a business with new shareholders, a buy-in;
- bridge funding, e.g. before a business goes public;
- privatisation of a business (public-to-private);
- restructuring (turnaround), i.e. changing the focus or funding structure of the business.
