CHAPTER 2.docx - CHAPTER 2 – FUNDRAISING TYPES OF PRIVATE EQUITY 1 VENTURE CAPITAL FUNDS Usually invest in start ups or early staged companies They


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CHAPTER 2 – FUNDRAISING TYPES OF PRIVATE EQUITY 1- VENTURE CAPITAL FUNDS: Usually invest in start ups or early staged companies. They know the market and have profesionals that help the Company grow. They acquire minority stakes. Ex: Facebook/ Dropbox/ Spotify (created in 2006 but didn’t have any investors until 2011 because of the geographycal barriers ) 2- LEVERAGED BUYOUT FUNDS : They look for companies that could take some changes, create value and then sell it. This is done in mature companies, this way the leverage is higher. They buy a big stake of the Company and usually have to fire the manager. They need the controlling stake to make the big changes that are necessary. ”Leverage”- they want to acquiere leverage to have total control, in this cases the companies have taken a lot of credit from Banks so what they have to do is return first the money the Company owes ( interest is around 5-10%). They invest in mature companies because this way companies have enough money to pay back their credits. Usually these type of funds are successfull . 3- GROWTH FUNDS: They invest in a Company, make it grow and then obtain profit form selling it. Ex: Dropbox, IVP invested in 2011, 4 years after the original investment (a diferencia del VC) that way they knew that the Company had growth perspective. 4- MEZZANINE CAPITAL FUNDS: This funds deal with debt. There exists senior debt- safest debt for shareholders; low risk but low interest rate. This type of funds deal with: Subordinate debt ( or mezzanine debt) : higher risk therefore hihger return. However it has less risk than equity debt. Subordinate debt is the debt in the middle. These funds dont’ want to be part of the Company, they give you debt.
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  • Fall '13
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