Wednesday, April 13, 2011

Investment Styles

I have a variety of companies that ask me what certain terms mean as it relates to investment styles, thought this may help.

Business Angels
Accredited angel are worth more than $1M
– Professionals, wealthy families, more established
– Think your church, schools, network from work

Everyday angels are people like you
– Friends, family, people in your neighborhood who might be willing to take a chance

Lists of Angel Groups:

Private Equity
The investment focus of a private equity fund is generally on a specific style of investing, largely determined by either the portfolio company’s stage of development or industry focus. A key feature is that investments involve equity ownership in a business, in contrast to loans.

Equity investors generally receive a seat on a company’s board of directors and are involved in management and strategic decision-making. Private equity investment funds can be classified into the following three styles:

Venture Capital
Venture capital invests in companies early in development, ranging from seed
investments designed to develop a concept, to funding complete development of a product, to late stage investing where expanding a firm’s customer base is the investment goal. Venture capital is frequently deployed in technology-oriented companies. This investment strategy carries the highest risk; early stage companies are subject to numerous risk factors, including financial, market, operational, and technology. Venture capital investing can also provide spectacular returns.

Buyout/Corporate Finance
Investments in existing operating businesses make up a large portion of the private equity investment universe. These investments may include helping new owners finance the acquisition of a business (generally as a result of a sale by a corporate parent or a generational change in the ownership of a family business); finance expansion for an existing business, allowing it, for example, to acquire smaller competitors; or to recapitalize a business to provide it greater flexibility to operate. Buyout and growth equity investments frequently involve organizations with substantial
employment and prospects for job growth.

Mezzanine investments are a form of corporate finance where the investment has
characteristics of both a loan and an equity investment. These investments are at the point in a company’s capital structure between debt and equity (hence the term “mezzanine”). The fundamental difference between private equity investing and investments in public securities is the manager’s participation in the growth and development of the portfolio company. The investment manager’s ability to devise strategy, hire key staff, implement an optimal capital structure, seek new customers, and identify possible acquisitions set private equity apart from passive investments in public securities.

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