What is private equity and venture capital?

Private equity and venture capital make an enormous contribution to the NZ economy but what exactly are private equity and venture capital?

Private equity and venture capital firms partner with investors like public superannuation funds, insurance companies and family offices to invest in companies. Their goal is to improve the companies they invest in over time including introducing new shareholders that can accelerate growth ambitions that generate good investment returns for these investors.

Private equity and venture capital firms typically buy two types of companies. Promising companies, poised for growth and expansion, and fixer uppers in need of repair.

The promising enterprise, think of an innovative software company, has a bright future but it’s still a small company with a limited regional customer base. It needs growth capital, the right strategy and experienced managers to get to the next level.

The fixer upper, think of the local manufacture that has been shedding manufacture jobs for years, sales falling behind its foreign competitors and struggling with rising energy costs. The factory still makes a great product but it needs a change in strategy and a capital infusion to compete.

How does the innovative software company grow? Or the struggling manufacture turn around?

By partnering with private equity or venture capital.

A venture capital firm can provide the innovative software company with growth capital to make strategic investments that will fuel its expansion. By leaning on the venture capital firm’s know-how and years of business experience the software company can successfully manage the growing pains that hold other companies back.

A private equity firm can provide the struggling manufacturer with working capital to make critical investments to upgrade its facilities. With new more efficient equipment the manufacture can reduce its costs and better compete in the global marketplace.

The end result in both cases is a dynamic growing company new jobs better products and economic benefits that ripple through out the NZ economy.

That’s private equity and venture capital at work.