PURPOSES OF FINANCING

When is private equity used?

There are many different forms of private equity.

Whether a company is just being established, an existing company is being expanded, a company is being spun off from a larger corporation or succession arrangements are required – private equity firms can get involved in all these situations.

 

VENTURE CAPITAL AND CORPORATE VENTURE CAPITAL

With venture capital, start-ups receive the capital they need for the set-up phase. Corporate venture capital companies are also on the rise: Venture arms of SMEs and corporations which invest in start-ups.

They are already well known in the USA and UK: Companies like California-based Sequoia Capital, which helped companies such as Amazon, Skype and Yahoo make it big. We are also starting to see more and more young, innovative companies being funded by venture capital in Germany.
And not just internet companies, which is what usually comes to mind first when you hear the term “start-up”. Venture capital finances innovation in all industries: Bioengineering, telecommunications, mechanical engineering and much more. Venture capital is a form of private equity, i.e. capital invested in a company by an investor who then sells its shares further down the line.

SME FINANCING AND SMALL AND MEDIUM-SIZED PRIVATE EQUITY FIRMS

If the product is already on the market and the start-up is successful or has plans to expand, growth financing may be the solution. German SMEs are known for their innovative products and outstanding developments in all industries. These hidden champions conquer global markets and ensure continuous technical and economic development. Private equity can be used to help SMEs with whatever they need, be that growth, buy and build strategies, succession planning or restructuring.
As well as private growth financers, there are 15 state-supported SME private equity firms in Germany which are regionally active. These SME private equity firms support the SMEs of today and tomorrow. Private equity from SME private equity firms strengthens the capital base of small and medium-sized companies. As a neutral source of capital, SME private equity firms invest in companies across all different industries on a long-term basis, up to 15 years.

LARGE BUYOUT

Buyouts are a sub-section of private equity and refer to a specific type of company acquisition. Investors usually acquire a controlling interest in a company not listed on a stock exchange in order to then sell it at a profit after a certain period of time. This gives the company access to capital and expertise to help it grow.
Private equity firms that engage in this kind of investment include Blackstone, BC Partners, CVC, Permira and Carlyle.

Although most high-profile large buyouts occur in the public eye, buyouts are a common occurrence across the entire German economy – particularly among SMEs, where buyouts help to prepare companies for globalisation.