Final year project proposal
TITLE
PRIVATE EQUITY/VENTURE CAPITAL
INTRODUCTION
This section will give a short introduction to this dissertation, by identifying a context for the placement of the research in terms of the literature and also why this topic is worthy of research. An overview of the private equity industry will be given, followed by the research objectives, contributions and targeted audience.
This paper examines the effect of private equity industry on the performances ' of portfolio companies in the UK. Private equity is a capital or an asset in operating companies that are not publicly traded. Private equity firms create investment funds that receive capital from investors known as limited partners. It is medium to
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The private equity investors known as the general partners, use their capital along with the money borrowed from banks, to buy companies that they believe could be notably more successful with the right combination of talent, strategy and capital. Private Equity investment market has been the fastest growing market in the past 15 years for corporate finance, compared to other markets such as the public equity and bond markets. George (1996) wrote a book called ?The economics of the private equity market ' that examines the reasons for the market 's unpredictable growth over the past fifteen years and highlights the key features of that growth. It examines the economic basis of the private equity market, analyzes the market 's current role and development in corporate finance, and describes the market 's institutional structure. However despite its rapid growth and increased significant for corporate finance, it has received little attention in the academic literature or press.
Joshua Lerner, 1994 wrote a book called ?The Syndication of Venture Capital Investments ' in which he said that "Between 1980 and 1994, the amount of private equity outstanding rose from less than $5 billion to $100 billion." This study examines the reasons for the market 's incredible growth between 1980-1994 and
1. What is private-equity investing? Who participates in it and why? How is Palamon positioned in the industry?
More recently, the overall weight of private equity in the Investment Office portfolio has been decreasing (from a target of 25% against the most recent number of 17%) as a consequence of Yale perceiving lack of specialization of several equity funds ("positioning themselves as asset managers") and because of the indiscipline and inexperience of several new market players. Albeit, Yale has not dismissed this asset class due to the historical success, the strong relationships developed with key managers, its know-how and experience on the private equity process and not to be perceived as a market-timer type of investor.
To differentiate itself from other private equity groups, Exxel built on Navarro’s “unique strength: his ability to originate deals, based on his strong ties with local business community [!], and then to add value to these enterprises”. Exxel also put diligent work in their target selection. To maximize the success rates, they first picked the most attractive industries, and then chose the best firms within those industries.
With the 2016 presidential race picking up, one of the main issues that are being deliberated among candidates and politicians is the private equity industry and it’s and widespread abuse of a tax loopholes. During the Obama administration, there had already been talks regarding the taxing of “carried interest”, the 20% incentive fee charged by private equity firms, as regular income rather than capital gains. In spite of the failed effort, politicians from both parties are now aggressively pushing to close the prominent loopholes enjoyed by fund managers widely. Additionally, private equity firms are being scrutinized for taking investors’ money regardless of whether or not they allocate the capital into deals. These two major issues from
1) Given an asymmetric information problem, (1) how could a venture capital firm protect its equity investment from it? (2) Describe the problem.
Mayfield charged a budget-based management fee to appeal to potential LPs. Because industry practice was traditionally a 2/20 based fee, Mayfield had a competitive advantage against other VCs as the budget-based fee was attractive because:
Zacharakis and Meyer’s research (1998) into the investment decision-making processes of VC investors is particularly pertinent to whether VC investments can be systematically improved and whether there are any gaps between understanding of their procedures and what happens in reality. Zacharakis, via studying 53 VCs from the two main start-up hubs in the United States (Silicon Valley and Colorado Front Range), establishes that there is a gap between the factors that affect VCs’ decision-making in reality and the factors that VCs identify as pertinent to their decision-making.
Private equity investments are primarily made by private equity firms, venture capital firms, or angel investors, each with their own set of goals, preferences and investment strategies.
In 2000, Louis Elson, managing partner of the U.K. based private equity firm, Palamon Capital, is pondering acquiring a 51% stake in TeamSystem S.p.A for the growth opportunity that TeamSystem possesses, hoping that such move would increase his firm’s presence in the increasingly competitive international private equity market. Even though Palamon has the opportunity to acquire the 51% state, Louis Elson must convince his colleagues at Palamon about what 51% stake is TeamSystem is really worth, how the deal would benefit Palamon standing both financially and in the equity market and whether Palamon Management should go ahead and make the investment considering both financial and non-financial implication of the deal.
Venture Capital is one of the fastest emerging sources of finance for new entrepreneurs. In spite of its increasing popularity, funding via Venture Capital is faced with a number of difficulties. Thus, it is important to study the various aspects of raising funds through Venture Capital.
Colonel Lilly founded Eli Lily and Company in 1876, because he felt there was a lack of high quality medicine on the market at the time. He also felt the most medicines on the market were ineffective in the curing of ills. In the case “Review Corporate Venture Capital at Eli Lilly and Company”, describes the issues surrounding Eli Lily and Company venture capital arm by showing the struggles the company went through in establishing a corporate venture capital fund. It takes you through the choices that were made keeping in mind the benefits to Eli Lilly and Company as well as keeping the Venture Capital arm separated from the company. This allowed Eli Lilly and Company to benefit from its investments, and kept the
REFERENCES•Ross, S.A., Westerfield, R.W., Jaffe, J., Jordan, B.D. "Modern Financial Management". McGraw-Hill, Eighth Edition, (2008)•R.A. Brealey and S.C. Myers, "Principles of Corporate Finance", McGraw-Hill, Seventh Edition, (2003).
Q1. What are the built-in tensions with a public private equity firm? How does Blackstone 's structure attempt to reconcile them?
All private equity firms have money to invest – what makes a private equity firm unique is the investors, through their guidance, expertise, and commitment. However, in order to turn these skills into a competitive advantage, it is necessary that, 1) you have a clear and consistent message, and 2) that the message is heard. This memo offers recommendations to increase the credibility and visibility of your firm, increasing deal flow through low-cost, high-impact activities.
To increase and maximize the wealth/value of shareholders, it is necessary that the company is competitive in their market and can reliably “earn a considerable return on its investments above their cost of capital” (Doyle, 2000). The increasing rates of return of well performing companies attract new investors who invest money to become shareholders. These outside funds from investors are essential for growth of businesses and the expansion into new markets. Measurements of generated shareholder returns over a certain time period deliver the company useful information on whether their objectives have been achieved or should be new adjusted (Atrill, 2009).