Private Equity I - InvestMentor

What is Private Equity?

Private equity (PE) involves investing in companies that aren’t publicly traded — or taking public companies private to operate away from the public eye.

The aim? Boost operations, expand the business, and eventually sell for a profit.

These investments are long-term and hands-on. PE firms may fund a startup, help an established company grow, or turn around a struggling business.

Who backs this? Pension funds, insurance companies, wealthy individuals, and specialized firms managing billions.

Private Equity vs. Public Equity

Public equity is about buying shares of listed companies through a stock exchange.

Stock markets are open to all, with shares traded easily and often, but individual investors rarely influence how the company is run.

Private equity plays out behind closed doors. There are no quarterly earnings calls or public disclosures. Investors do their own due diligence: reviewing finances, contracts, leadership, and risks before writing big checks. PE firms typically take board seats and often appoint key executives.

Private Equity Strategies

Private equity isn’t one-size-fits-all. Each strategy has its own playbook, but they all aim to boost the value of the company.

Venture capital backs early-stage startups chasing big growth.
Growth capital helps mature companies grow without giving up all control.
Leveraged buyouts (LBOs) use debt to buy companies and improve performance.
Distressed investing targets struggling businesses with turnaround potential.
Mezzanine financing blends debt and equity for companies in transition.

Sarah Launches TechSpark

Sarah, an ambitious entrepreneur, sees a gap in how clinics manage patient records: too many systems, too little clarity. She launches ClinixTech, a medical software startup that streamlines the data.

With limited funds, she turns to venture capital. An experienced firm invests, offering capital, strategic guidance, and healthcare industry connections.

Backed by the VC firm, Sarah accelerates development, hires a skilled team, and positions ClinixTech for rapid growth in a competitive market.

How Private Equity Firms Operate

Private equity firms raise money from wealthy individuals and institutional investors to create an investment fund. That fund buys stakes in companies, identified and vetted by the PE team as attractive investments.

The fund typically acquires a controlling stake, aiming to increase profits and scale the business.

The fund sells the stake or lists the company on the stock market usually after 4-6 years. This is called an exit. Profits flow back to the investors, while the PE firm takes a performance cut.

Do you want to learn more?

Download InvestMentor to access the full lesson and explore interactive courses that build your financial knowledge and guide you toward smarter investing decisions.