Investments made by a private equity or venture capital fund and its sponsor, merchant banks or other institutional investors in illiquid, non-public securities issued by a private company (or, in some cases, a public company). Common types of private equity transactions include.
Start-up or early stage venture capital.
Late stage, growth equity minority investments in more mature companies.
Leveraged buyouts, including going private transactions.
Recapitalizations and distressed investments.
Private equity and venture capital investors often take an active role in managing the portfolio companies through board representation and stockholder covenant protections, but rely on management for the day-to-day operations of the business. They invest for a finite period and with a defined exit strategy for their investment (for example, by sale to another financial or strategic buyer, leveraged dividend recapitalization or IPO).
The term private equity is often used to refer to the subset of investments in more mature companies through leveraged buyouts and other control transactions (as opposed to minority investments in start up venture capital or growth equity).
For more on private equity investing, see Practice Notes:
Minority Investments: Overview.
Out-of-Court Restructurings: Overview.
Private Equity Fund Formation.