I attended a CLE (legal education) course today on the current state of the private equity market. As we discussed the topics, I thought it might be important to distinguish “venture capital” from “private equity” for readers.
Venture Capital firms typically invest in startup companies, often in high growth industries. They usually take a preferred equity stake and a board position and work with the company to grow to a point where the company would reach a liquidity event such as an aquisition or public offering.
Private Equity firms typically invest in middle market companies looking to raise funds for growth. The deals are often “leveraged buyouts” or “management buyouts” and include equity and debt financing components.
Generally the private equity world is at a standstill as companies cannot get debt financing to help finance any transaction and private equity firms are not able to find transactions that offer them the return that they demand. Depending on who you ask, it seems this market will remain dead or slow at least through next spring and possibly through the end of next year. A lot depends on how effective the government’s bailout is in getting the capital markets moving.