Equity investment is one of the top ways to get involved in business decision-making process. As the equity investor, you will have some control over both strategic and operational issues that concern the business. You can check vermeer capital fiche to get more ideas. The perceived chemistry and synergy between equity investors and existing business owners or management are critical towards the success of joint ventures.
Types of equity investment
Venture capital investment
Capitalists invest in various businesses at early stages. This is because at those stages failure or success of a company is certain. This type of investment carries higher risks and bigger rewards as compared to other forms of investments.
Private equity investment
This is when private equity firms invest in public listed companies and make them private. These firms seek to do what they do best. They improve business efficiencies and management to make the business more profitable.
This is one of the rare ways of becoming an equity investor without investing a lot of equity capital. The existing owners may fail to find an investor with money to purchase the business. In that case, they look for a financial sponsor instead. This can be a private equity firm that does not commit to investing its capital. Then an LBO loan is arranged with company owners, and cash, which is raised is used to buy out the existing owners. This leaves the financial sponsor in charge of the company. You should note that the debt created has recourse only to the company and not a private equity firm. These transactions make equity firm the sole owner of the business.
Is the investment right for you?
Equity investment means having a partner. If you have passion and ready to get deeply into the business operations, then it is good for you. Also, if you are okay with lending your cash and staying in the sideline, then this is a great option for you.
Advantage and disadvantage
Equity investors stand to gain a lot in case a business becomes successful. Moreover, you will be getting first-hand knowledge about running the business. However, it has its setbacks. For instance, there is a possibility of potential conflicts with the existing owners and management over the business decisions. Also, your investment capital is quite a risk.
Finding a business
Nowadays, several start-ups are in need of capital support. Therefore, if you are a serious equity investor, you should consider taking over a company that is underperforming and turn it around.