3. Private versus Public Equity Securities
c. distinguish between public and private equity securities;
What are the three most common private security investment strategies?
1. Venture capital
2. Leveraged buyout (LBO)
3. Private investment in public equity (PIPE deal)
What is venture capital?
Venture capital is financing for privately held companies, typically in the form of equity in less mature companies, for the launch, early development, or expansion of a business.
What is a leveraged buyout (LBO)?
A leveraged buyout (LBO) is the acquisition of a company or division of a company with a substantial portion of borrowed funds. A buyout fund seeks companies that are undervalued with high predictable cash flow and operating inefficiencies. If it can improve the business, it can sell the company or its parts, or it can pay itself a nice dividend or pay down some company debt to deleverage.
What is a private investment in public equity (PIPE)?
A PIPE deal involves the selling of publicly traded common shares to private investors. Usually a last resort for companies that can't get financing from other means.