The term private equity covers many different types of private equity funds known as stages. These stages are described below:
These funds provide equity capital to mature firms in need of capital or ownership transition. Transactions tend to have a layer of debt in their financing. Small and mid-sized buyout transactions tend to have lower proportions of debt in their capital structure relative to their large and mega-sized counterparts.
These funds provide equity capital to start-ups and companies in the early stages of growth. Portfolio companies tend to be focused upon technology, healthcare or “green” technologies. These companies tend to exhibit high levels of growth, with the potential to become profitable businesses. The immaturity of these businesses means that some will inevitably fail. However, within a successful venture capital fund, any failures will typically be counterbalanced by a number of extremely profitable investments.
These funds provide expansion capital to enable a company to scale a business. Investments tend to be made after the early stages of a company’s life. Returns are largely dependent upon cash flow growth.
These funds tend to invest in mezzanine or mid-layer debt capital, which provides more protection than equity financing in the event of default. These funds can aim to achieve equity-like returns via the use of warrants and equity-like features. Mezzanine debt tends to exhibit lower risk and return features than other, purely equity-based, private equity stages.
The term special situations also includes distressed debt and funds specialising in energy and turnaround investments.
These funds invest in a variety of different stages.