Private Equity: Episode 2 - A General Definition

After exploring the historical roots in Episode 1, let's shift focus to a broader definition of Private Equity.

Private Equity refers to investing in private companies, as opposed to publicly traded ones (referred to as Public Companies). In this investment model, capital is injected into a company by acquiring equity stakes to support its growth. This is known as equity or quasi-equity funding.

Two main activities stand out in this sector:

1. Venture Capital: This involves financing early-stage companies or startups with high growth potential.
2. Buyouts: Often referred to simply as Private Equity, this involves investing in more established businesses—such as SMEs or mid-sized companies—to help them reach new growth milestones, like launching an R&D project or expanding internationally. These transactions may be funded using a leveraged bank loan, which is then known as an LBO (Leverage Buyout)—a term that might sound familiar to you.

Traditionally, Private Equity is a long-term investment strategy, providing companies with sustained support. Investors typically remain shareholders for at least five years, allowing sufficient time for businesses to develop and create value.

Today, Private Equity is among the most rewarding asset classes, delivering an IRR of 11.7% over the past 15 years, according to France Invest.

We’ll delve deeper into this in Episode 3.