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Private Equity Failure: Where’s the Entrepreneurial Blood?

What are the risks associated with private equity finance and how can investors be successful? 

Understanding Private Equity

Private Equity Finance refers to the initiative of raising capital from external investors and in turn rewarding them a share of the business.  It consists of equity shares of companies not registered and traded on a public stock exchange.  There are various ways of investing in private equity – leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.

Private Equity Finance: Risk Capital

Private Equity is often considered as “risk capital” due to its inherent nature and characteristics. In the case of private equity, operational issues make it hard to determine who ultimately is responsible for economic risk that arises out of a leveraged buyout.  These are the result of using increased complex credit derivatives. The chances of these derivatives not being confirmed in a timely manner is very high and this may lead to more amount being traded than underlying assets. Private equity finance is also considered a risk as a conflict of interest may arise between the responsibilities the firm has towards itself and the companies owned by the funds.  Private equity investors are faced with huge turmoil along their way and need to be more prudent while making, managing and exiting investments.  It is always important to have an entrepreneurial spirit when taking up such high risk ventures.  Private equity investors spend tremendous amount of their time and energy looking for good business investments and enable them boost their performance.  Entrepreneurs always believe in the concept of more risk equals more return! 

Successful Private Equity Investing

Private Equity Finance, with its inherent risk characteristics can be a successful venture by knowing what you’re getting into. It is essential to be in places where successful entrepreneurs are.  Success breeds further success, after all.  This will give investors valuable insights and gain knowledge of new companies. They are masters in their field and just being in their presence will enrich investors with a lot of information.  Developing an exit strategy is crucial to the success of private equity finance. The investor should have a liquidity event in place and make sure it brings rewards.  A very important aspect is diversification.  When there is effective diversity in the portfolio, small losses can be negated by higher profits in other investments and lead to long term success. With all these tips and insights, private equity finance can be highly rewarding for an entrepreneur, both as an investor as well as a business owner seeking investment yourself!

DealMarket’s online platform is meant to help the private equity world become simpler. Private Equity Finance can be successful if parties meet each other and close profitable deals. Powered by cloud-based technology, this onlie platform is considerably more efficient than using e-mail and Excel spread sheets.

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April 14, 2012 um 10:13 am
Business,Miscellaneous Finance
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