The Pros & Potential Cons of Private Equity Investments
As with all types of investment, equity investments have their advantages and potential disadvantages. Let’s take a look at both, starting with:
The benefits of private equity investments
Companies and startups can take advantage of private equity in a variety of ways. In the first instance, it gives companies seeking liquidity an alternative to conventional financial mechanisms (e.g. bank loans with high interest or listing on public markets).
Some forms of private equity fit very well for early-stage startup companies and for financing/progressing ventures that are at the ‘ideas’ stage. A good example here is venture capital.
Looking at companies that have been delisted through a private equity exercise can also prove to be beneficial. This is because they are then out of the public spotlight and can look to turn their fortunes around through a variety of different growth strategies.
In this respect, senior management then has the consistent pressure of producing healthy quarterly earnings taken off them. This then allows them to look at new ways to reduce losses and from there look at ways to turn the business into profit.
The potential disadvantages of private equity investments
The unique make-up of private equity also means that potential disadvantages come in a variety of different ways.
First, it can be challenging to liquidate holdings in private equity. This is because unlike public markets there is no established order book to match potential buyers with sellers. This means a search must be undertaken for the company to find the right type of buyer for the sale of its investment or the company as a whole.
You then have the fact that the pricing of shares for a company in private equity is not subject to market forces. They can only be determined through buyer and seller negotiations.
The final challenge comes with the rights of private equity shareholders. These are usually decided on an individual case-by-case negotiation basis rather than the typically broad governance framework which dictates such rights in public markets.
Anyone interested in Private Equity investment management whether from an early-stage founder’s angle, a more established company, or those seeking profitable investments should look to maximize their opportunities.
A tried and trusted way to achieve this is by getting in touch with the highly experienced team at WOWS Global. We are on a mission to build a digital ecosystem that caters to private markets. We are committed to connecting investors and startups alike through the consolidation of all the required tools to navigate each step of your financial journey.
A high mortality rate of startups is an unfortunate aspect that founders must consider. WOWS Global can help you avoid this by streamlining the necessary fundraising process while increasing the liquidity of private equity.
We can democratize access to startup funding and offer advice on how employees can make the most of their rightfully earned ESOPs.
With our commitment to uncovering and maximizing true value for individuals, investors, and companies we strongly believe our advice, guidance, and recommendations will benefit all concerned.
To understand more please reach out to us for an initial no-obligation discussion at:firstname.lastname@example.org