In finance, private equity is a type of investment where the investor participates in the ownership of the company contrarily to a creditor or debt owner.
It is also an asset class consisting of equity securities in companies that are not publicly traded on a securities exchange.
A private equity investment will generally be made by accredited and/or angel investors through a private equity firm, a broker-dealer, a venture capital firm, an investment fund or a financier.
Each of these categories of investors has its own set of goals, preferences and investment strategies. However, all provide working capital to a target company to nurture expansion, new products or services development, or restructuring of the company’s operations, management, or ownership.
Common investment strategies in private equity include: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.
In a typical leveraged-buyout transaction, a venture capital firm buys majority control of an existing or mature firm.
This is distinct from a private equity or growth-capital investment, in which the investors (typically venture-capital funds, accredited or angel investors) invest in young, growing or emerging companies or startups, and rarely obtain majority control.
Private equity is also often grouped into a broader category called private capital, generally used to describe capital supporting any long-term, illiquid investment strategy.