June 24th, 2015, 01:03 PM #1 2015-06-24T01:03PM @primackaxios So I’m trying to decide if it is worth investing in venture capital or not. If I were to invest in it, what would the return be? Investing money in a startup does not guarantee long-term success, and investing money does not mean you will get rich (unless you are an early investor). So, how much could I reasonably expect from my investments? Does a private equity fund have the right mix of investible risk and investible reward? If yes, which type of private equity fund should I look into? Private equity funds work on a case-by-case basis; they do not focus on a specific strategy and they do not give investors access to all of the available information about a company. However, this blog post is as general advice as there is currently business advice available online. Let’s take a look at the different types of private equity funds with different levels of evidence and see where we stand.
What is Private Equity?
Private equity funds invest in low-cost, low-risk companies that lack the reach and scale of a traditional private equity fund. One example of a well-regarded company is Uber. Uber is not just a company—it is an organization. Uber’s investors are the owners and employees of the company. The money invested in Uber comes from the investors of other companies that have signed contracts with Uber. Uber’s vision is to become a fully owned subsidiary of a larger company. Private equity funds have received mixed reviews from investors in the past, with some being critical of the investments and others being worried Uber could become too big to ignore. Uber shares are currently trading at a median price of $19.87 each, which is above the average of the past few years.
Venture Capital
In addition to the benefits of private equity, venture capital also comes with some risks. Venture capitalists invest in companies to invest in companies that they believe will go far in their research and development (R&D) efforts. For example, Google’s co-founders Sergey Brings and Larry Page invested in startups that included Facebook, Instagram, and Twitter. Facebook shares are currently trading at $38.23 each and Instagram at $5.19. Google’s investment in Facebook may have helped launch the company, but its investments in other startups have been more important. The most recent research from the Federal Trade Commission found that 90% of Google’s business is due to research and development efforts. If the company cannot sustain the rate of progress it is experiencing, investors could lose interest in the company in an upcoming round of funding.
Series A
Venture capitalists are also called early investors. The term has become somewhat of aRegistered Hoax when it comes to early stage technology startups, but it applies to companies that are really young. Typically, the companies being invested in are unproven, and the money will go towards mentoring or acquiring early stage investors.
Series B
Similar to the way venture capitalists invest in early stage companies, small business owners (SBOs) also invest in startups that may not yet be considered small enough to draw investors. These startups are typically much smaller than those in the previous two categories, so they do not yet have the scale necessary to attract the kind of investments that larger companies do. However, SBOs do have the advantage of being able to custom-write the terms of their investments, offering investors flexibility in how much money is committed and how much may be released.
Series C
Sovereign wealth funds (SWF), also called tax-exempt foundations, are not public companies. Being a foundation does not mean that the funds are not under the control of the government. They are, in fact, managed by the U.S. government. The SWF umbrella includes many different organizations that are mostly based in the U.S. but which also include charitable foundations, foreign foundations, and private foundations.
Final Words
Private equity funds and funds of funds are a very different type of investment from traditional investment funds. Private equity funds invest in companies on a case-by-case basis; they do not focus on a specific strategy and they do not give investors access to all of the available information about a company. However, this blog post is as general advice as there is currently business advice available online. Let’s take a look at the different types of private equity funds with different levels of evidence and see where we stand. Private equity funds have received mixed reviews from investors in the past, with some being critical of the investments and others being worried Uber could become too big to ignore. Uber shares are currently trading at a median price of $19.87 each, which is above the average of the past few years.
