Private Equity: what it is – Dictionary of Economics

Definition of private equity

Private equity is a part of venture capital investment, which is the most general term used to refer to the concept of venture capital.

Venture capital is a form of business financing that is articulated through the participation, temporary and minority, in the social capital of companies that are in the initial stages of their development.

Within this scope. the private equity activity consisting of the creation of a portfolio of shares of companies not listed on the official markets, providing added value in management, intending, in principle, a temporary stay in the investees.

This, however, is the only difference between the two concepts, since the vehicles for action, investment philosophy and contribution to the investee company are the same.

The main advantage of private equity is that in addition to the monetary contribution made, the venture capital entity makes a non-monetary contribution. This materializes, among other aspects, in the support in the daily management of the investee company; in credibility to facilitate the establishment of contacts with third parties, such as banks, suppliers and customers; in the experience to identify and recruit the company’s key personnel; etc. All this allows this financing system to contribute to creating value in the investee companies.