London Business School | Groups



Introduction to Private Equity  

Private Equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies. We follow the British practice and use the term Private Equity to describe the industry as a whole, encompassing investments at all stages. We refer to Venture Capital investments as a subset of Private Equity.

Some commentators use the term "private equity" to refer only to the buy-out (Management Buy Out - the existing management team becomes a part-owner of the business) and buy-in (Management Buy In - a new management team from outside the business becomes a part-owners of the business) investment sector.

Others in Europe, but not in the US, use the term "venture capital" to cover all stages, i.e. synonymous with "private equity'. In the US "venture capital" refers only to investments in early stage and expanding companies.

The main sources of private equity are private equity firms and "business angels" (private individuals who provide smaller amounts of finance at an earlier stage than many private equity firms are able to invest).

Post bubble, in the current economic environment, private equity firms are looking for investment opportunities where the business has proven potential for realistic growth in an expanding market, backed up by a well-reseached and documented business plan and an experienced management team - ideally including individuals who have started and run a successful business before.