Private Equity

1
Private Equity
The Finnish Venture Capital Association

• Private Equity as a Source of Finance

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What is private equity?

• A form of financing with a medium-term time
  horizon
• Provision of equity financing for companies not
  quoted on the stock market
• Provides active ownership and co-operation in all
  areas of the business
• Investments are made from funds managed by the
  private equity firms or by business angels
• Investors in funds include pension and insurance
  companies, banks and fund of funds
• The added value is realised not until in the exit
  phase of the investment

3
Benefits of private equity

• A form of financing that is equity based,
  flexible and non-secured
• Increases the equity ratio of the firm
• Returns depend on the success of the portfolio
  firm
• Brings expertise to the different areas of the
  business
• Increases credibility in the eyes of financiers,
  customers and other stakeholders
• The domestic and international networks
  introduced by the private equity company

4
The factors that a PE company expects from the
portfolio firm

• Considerable growth potential
• Management team with industry experience,
  complementary competences and the willingess to
  grow the company rapidly
• The firms products/services have a clear
  competitive advantage
• The owners are ready to give an ownership stake
  against a private equity investment
• The exit goals are clear and in line between the
  owners and the PE company

5
Equity-based financing in the different
development stages of the firm
Growth
Financing needs
IPO
Private Placement -arrangements
Expansion stage financiers
Early stage financiers
Business angels Own financing
Time
Early growth
Expansion
Bridge financing
Seed
Start-up
6
The investment process

• 1. Contacting the PE investor
• 2. Preliminary assessment
• 3. Additional information and negotiations
• 4. Due diligence and valuation
• 5. End of negotiations
• 6. Period of ownership and development
• 7. Exit

7
The factors affecting the choice of the PE
investor

• The development stage of the firm
• The industry of the firm
• The geographical location of the firm
• The amount of financing needed

8
The development stages

• Seed
• Start up
• Early growth
• Expansion
• Bridge financing
• Rescue/turnaround
• Management buy-out (MBO) and management buy-in
  (MBI)

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Limited partnership fund structure