When potential strategic investors first enter the world of investment, the first question that comes up to their mind is: which industry will bring them the most money? And well, it is a tall order to answer the question, yet, we can closely observe the main. It is a personal choice to pick the equity investment strategy that fits your starting capital and pursuits, yet here you can find a general description of each type.
Key Private Equity Investment Strategies
All over there were distinguished three main types of private equity investing strategies, which include: venture capital, growth equity, and buyouts. In fact, those three do not intersect too much in their field of skills required for success, so the competition of investors from those areas is almost equal to zero. Now, let’s take a look at each private equity strategy:
Growth Equity
It stands for the type of investment when the money is being put into the existing company, which has already shown its performance on the market. The main advantage of this type of investment strategy is you can test the product on your own, estimate the potential of the business, and after careful consideration, decide whether you want to invest your money into such equity.
The company will use your money for its development processes and needs during the entire lifecycle, meaning that is one thing you need to keep in mind when thinking about growth equity. Ask the company for their scaling plan: who do they want to improve their product or service? Which markets do they want to cover? what is their competitive advantage? Once they are ready to provide you with answers, go ahead and make your decision.
Buyouts
The second in our list of private equity strategies will be the buy-in investment. The essence of this strategy is simple, it happens when the mature, typical public and developed company is being bought by the investor or a group of investors.
Management buyouts involve a public company going private to restructure, with a private equity firm funding the buyout.
Leveraged buyouts help companies make acquisitions without spending too much capital. The goal of buyouts is to shift control for internal improvement and a return on investment.
Venture Capital
And last but not least effective type of investment is venture capital. The concept lies in investing money in startups. It is the riskiest type of investment as you are buying a cat in the bad. However, besides diversifying your investment portfolio strategy, this type of investment can bring your solid money, as it the history of venture capital performance shows.
Industry-Specific and Asset-Level Strategies
So, what is the difference? The main distinction between industry-specific and asset-level strategy is that the investor company invests in the asset, not in the specific company.
Real estate and infrastructure are the two most important areas in this category, and corporations invest in them using one of three strategies:
- Purchase Existing, Stabilized Assets – This is also known as “core real estate” in real estate and “brownfield” in infrastructure.
- Purchase Existing Assets and Renovate or Enhance Them – In all areas, this is referred to as “value-add.”
- Create New Assets – In real estate, this is referred to as “opportunistic” or “greenfield” in infrastructure.
Which Strategy Is Best?
Unfortunately, there is no such answer that would perfectly fit every investor of investing company. Investment is a complex process of analyzing and summarizing information to make the right choice. It takes people a year to find their golden ticket to American capital strategy.
Guide to Private Equity Investment Strategies
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