In
several cases, private equity funds in India are provided by the traditional private equity firms in India, which are formed by a group of investors, who have
pooled their money together for promoting businesses with their investments.
These investments include providing funds for start-up businesses, which have
just entered the market to established and developing companies, mainly private
companies, who first prefer to stay private before possibly taking the public
route at a later stage.
Private
equity investment comes in different forms that usually comprises of purchasing
equity securities, providing growth capital, venture capital and mezzanine
capital. Each of this investment type is carried out in specific types of
situations in order to reach targeted objectives. In the realm type of
investing, investors usually provide required financing to take control of
companies. Investors prefer to purchase equity securities, which entitles them
for an ownership share in the company.
Private
equity firms in India sometimes purchase businesses, which are normally called
as leveraged buyouts (LBOs). This type of businesses is generally funded by
large debt amount. These transactions carried out simply means those assets of
the businesses being bought together with the firms doing the procedure of
buying will be used as collateral.
As
startup businesses are at their initial stage and just have entered the market,
they don’t possess that capital as required at initial stage to run the
business smoothly, but later can prefer to raise capital by issuing bonds or
stocks to the public. For such startup or new ventures, even banks don’t
provide financing options, so the owners of such businesses usually choose to
opt for investing in private equity funds in India. The other reason is that
start-up companies usually don’t have substantial earnings and are extremely
risky to be provided funding, but for agencies, the companies might look very
promising.
Private
equity investing can be made through investments done on the secondary market.
Typically, it has been seen that private equity transactions require investors
to stay committed to oversee their investments for a specified time limit,
which can be pretty long. Thus, secondary market allows investors to come out
of their commitments, before the end of the particular period, which in turn
allows other investors to enter.
