Private Equity (PE) is the Ownership and interest in an entity that is not publicly traded or listed. A Private Equity Investment will generally be made by High Net-worth individuals, Family Offices, Venture Capitalists, Angel Investors and other Investors that purchase stakes in Private Companies.
Private Equity is a form of Alternative Investment where a Wealthy individual invests Capital into a Private Limited Company that is not listed on any of the Stock Exchanges. The private Equity Asset class allows High Net-worth Individuals to invest in Private Limited Companies with the potential to scale up and flourish in the future. Rather than investing in the stock market, bonds and other conventional forms of asset classes, investors with a substantial corpus may park their money in Private Equity investments to get potentially handsome returns in future. While investors' returns are far higher than the returns offered by the equity markets, it requires medium to large investment upfront and a much longer investment time horizon. The risk is multi-fold as the investors' returns are pegged to the decisions of the management of the Company.
The year 2021 was marked to be an important year for the Indian Private Equity investment landscape-a convergence of heady tailwinds coming together in a record growth year as the Venture Capital Funding reached more than 38$ Billion with several highlights: Investments in India grew by 3.8x, over 2020 faster than China’s. 44 Unicorns were minted in India, exceeding China’s 42 Unicorns in the Year. New Investors made significant inroads into India in 2021. The Indian Start-up ecosystem reached an inflexion point in maturity in the year 2021 fuelled by Private Equity/Venture Capital Investments. With $400Billion+ in valuation across a burgeoning ecosystem of 50K+ active start-ups addressing major pain points for consumers and small and medium businesses. More Promising numbers to add in the years to come and can create Wealth for the Investors.
A group of Private Equity investors or a private equity firm raises a capital pool by forming a private equity fund. The fund is then invested in a particular company or a group of companies that promises growth. The ultimate aim of the Private Equity investors is to gain returns from their investment in the company as the company starts making money. However, the investors are generally not involved in running the company or making business decisions. They might provide advice to the Company’s management and help draft strategies. After the Company overturns its fortunes, the private equity investors can exit with their returns. Each Private Equity Investment is backed by a strong investment thesis that plays out over a year and more time horizon. Thus, Private Equity investments allow High Networth individuals to tap into the potential of equity markets and can venture into this highly profitable asset class.