Angels, venture and buyout - who is who?
The private equity value chain
The private equity value chain covers all of the stages of investment in a company, from the first stage where an idea, innovation or invention is assisted in being transformed into a service or product, to the mature company that is faced with a restructuring or other demanding development.
By providing entrepreneurs and business owners with capital and competence, private equity investors create value with a more active involvement than other types of owners and financiers normally provide.
The overall concept of private equity encompasses a number of different types of financing and investors. Private equity provides investments in unlisted companies, outside of the stock market. Investments can be made by different types of investors and differentiate themselves in several respects:
Business Angels
Private investors, typically active or former entrepreneurs, who invest private equity in the development of new companies.
Venture capital firms
Money is invested at a relatively early stage of development in a company, as the company moves from a development phase to the selling of a product/service or business expansion.
Buyout firms
Investments are made in mature companies with development potential and are in need of an active owner with financial strength.
Value creation
Private equity’s value chain is built together with investors, with the components being suitable in different ways for different investors and for different stages in a company’s development. Everyone is involved in creating value – for the companies in which they invest and for their own investors – although with a different focus.
The different investors can also be compared to runners in a financial relay, where the business angels run the first leg and the buyout investors complete the race. What differentiates the various types of private equity investors is the focus on a certain phase, the decision-making process, the size of the investment and the source of the capital.