Why investing in private equity is the right choice?

Investing idle money in various sources is always a good idea for those who want to utilize their earnings. Returns from the investments can keep you afloat in tough times to help pay the bills or perhaps have a life that you actually want without much toiling.

But managing the risks of the investments is a matter of paramount importance, failure to which can lead to unrecoverable losses which would defeat the purpose of investing money in the very first place.

More exposure to equity would give better returns but will double the risks too; a higher stake in debt is sure to reduce the risk but also reduces the yield. So, what is the best way to spread the risk while still reaping good profits? In case, you are ready to go through the risks of the private equity market in India, here is a break for you.

Read the real estate market trends

Private equity funds are more or less, a lot related to the real estate business. A real estate fund consists of various real estate hoardings which automatically minimizes the risk of losses. Instead of investing a large sum in one asset, invest the money in multiple big commercial projects to spread the risk and yield a good overall return.

Mutual funds

Like real estate funds mutual funds are also professionally managed funds that invest money in publicly traded financial instruments like equity, bonds and commodity. The decision to choose the exposure proportion of the sum belongs to the investor. An investor can go for more debt exposure or for more equity of a balanced mix, whichever option suits the investor.
Thoroughly compare all the bonds

Compared to other investment funds in India Real Estate funds balance the risk and yield for the investors more efficiently, but it is a long-term commitment as the fund cannot be withdrawn. However, there is no such limit on bonds. Bonds are a loan to the issuing companies who pay a fixed interest until maturity but they can be called before maturity for liquidation purposes the only act is that they don’t as much return as the real estate funds.

Beginners Guide to Private Equity

Private equity is an investment class which refers to investment of funds, organized as limited partnerships that take charge of companies that are not publicly traded to restructure them. The primary function of private equity is to create or generate profit for its investors in any business. Private equity funding firms pool money from a bunch of investors to collect millions or even billions of dollars that are used to acquire stakes in the companies. Private equity firms accomplish this by starting with smaller companies, increasing their values and selling them at a profit.

HOW DOES IT WORK?

Private equity firms, sometimes buyout a company outright and in such cases, the funder may stay to run on the business or maybe not. Some other private equity strategies include cashing out the existing investors, buying out the founders, providing capital for expansion, or providing recapitalization for a falling business. Sometimes, private equity is also associated with leveraged buyouts in a company or business, in which funding borrows additional money to enrich and enhance its buying power by collaterally using the acquisition target’s assets.

ADVANTAGES

• The private equity funding could easily have genuine professional experts who involve in sourcing the prospects of a business or a company which otherwise becomes unavailable to many for investments.
• Outcomes or results can be mind-blowing sometimes. Though minimum profit is guaranteed, there is also a possibility of scoring a home run and making a return many times greater than the capital.
• Sometimes, there could be too many tax advantages.
• If it is a friend’s business, he/she can be really onto something big with some help by private equity.

DISADVANTAGES

• Sometimes, the business which you invested may try to raise capital when you cannot or do not want to invest or participate. This may lead to disturbances in the firm especially if it is a friend’s business.
• The data to analyze is not always the same as that of a public company.
• The management generally has interesting and useful information advantages.
• The variability of results can be very high which no one can guarantee. Sometimes, many investments become total losses in private equity.

PRIVATE EQUITY SERVICES IN INDIA

Private equity firms in India manage private companies’ investments and portfolios with accuracy. With lots of research and analysis, they help the private companies to strategize in the long run of their business. The services of private equity firms in India are the following and is bound to change in the future.

1. Fundraising and Setup
2. Tax and Regulatory Services
3. Risk, Governance, and Compliance
4. Forensics
5. Corporate Finances

 

 

 

Why It Is Important To Impress The Angel Investors

Securing a private equity investment is a huge thing for any company. All that hard work and sweat that was put into the company gets finally recognized and for most companies securing the investment is a lifelong dream. However, a lot of people fail in securing any kind of funding because of their ill-preparedness or because they might not be the correct fit for the firm which they have approached. The decision of funding a new project or company is mostly finalized by the angel investor who is willing to take the risk and help the company build an empire. A lot of concentration might be given to a pitch but the most important person to impress is the angel investor himself.

What Are Angel Investors?

Angel investors are usually the ones who provide the capital and approve the funding after a pitch. While they could be known as high flying lenders, the investors are more focused on the entrepreneurs’ vision rather than the business’ viability. While some investors engage in crowdfunding platforms using their influences, other investors build internal networks to raise capital. They are also known by angel funders, private investors, business angels, and seed investors.

Tips to Impress Angel Investors

Angel investors are trickier to crack than venture capitalists as they use their own money, unlike the latter that are in charge of their firms’ money. Most private equity firms in India are operated by angel investors in lieu with international venture capital firms.

One of the most important things for an angel investor is the feasibility of the business opportunity. Convincing an angel investor that the product or startup can be a force in its sector can work wonders for your funding. That, coupled with market research is a sure-shot means of securing your funding. The other thing that is very important in a pitch to an angel investor is the oratory skills of the entrepreneur. Convincing the angel investor that your dream needs to be a reality and the passion you bring in your pitch can make or break your chance of securing money for your venture. All these tips can help you provide the perfect pitch and get your preferred angel investor on board.

An Introduction to Private Equity

Private Equity is defined as a form of investment that is done in a firm to gain significant control over the firm’s activities and operations and restructure it to increase its value, which is then sold at a higher value. Private equity consists of huge amount of funds that are invested by large investing organizations, university endowments, and rich individuals. Since new organizations have a bigger potential to come up with better innovations, investors often specifically aim start-ups as they have a greater chance of creating more value.

When an organization is in debt and desperately needs capital to sustain in the market, private equity firms in India come to their rescue and invest a large amount of capital to nurture, develop and organize it and take over the ownership. This helps the organization to expand and earn more profit. Once it is stable, the firm resells the organization at a profit.

Types of Private Equity Investors

Venture Capital Firms: Venture capital firms invest mainly in start-ups as they have a high potential for expanding. Most venture capital firms invest in multiple start-ups at a single time that exceeds no more than 50% of the equity of the companies. This is effective because there is always a chance that one start-up may fail while the others flourish.

Private Equity Firms: Private Equity firms in India mainly focus on matured organizations that are facing issues in growth and development due to inadequate profit making. They invest a huge amount of capital only in one organization, take over the ownership, and control all its operations. This helps the organization to get over the debt and earn more profit for the investor.

Angel Investors: Commonly known as a private investor, an angel investor is a wealthy individual who provides capital to a start-up in return of ownership equity and convertible debt. Often, a group of angel investors works together and shares the total investment as well as guides the organization.

The structure of the private equity investments varies but in most cases, leveraged buyout is the most common approach. Instead of using the capital of their own, many firms prefer borrowing the capital from somewhere else and then invest it in the organization. In return, the assets of the acquired organization are used as collateral for the loan.

5 Venture Capital Market Trends in India

India is the hub of private equity (PE) and venture capital (VC) investments owing to the technology sector that is progressing at neck breaking speeds. In the past 3 years or so, India has seen more than seventy percent of the total PE and VC activity across the globe. Logically, venture capital and PE funds in India are big. Here are the top 5 venture capital trends in India:

1. Technological is Growing

Most sectors that contribute to the economy of India function extensively on technology, which has changed the way organizations and institutions operate. The services sector requires innovations in cloud, mobile, and social technologies to reduce operational costs and satisfy the customers. This presents an opportunity for investment via venture capital funds. Publishing, advertising, marketing, logistics, travel healthcare, education and the financial services industries are subject to these investments.

2. Indian firms are expanding overseas

Indian B2C companies are expanding overseas to increase their customer base and bring in more profits. This has been possible with the increasing use of internet and national boundaries breaking. With the help of social media, companies are reaching out to potential customers across the globe. As the demand for products increases, venture capital fund investments opportunities also grow. Investors are looking towards companies hoping to widen their horizons.

3. Growth of digital currencies

Indian markets have finally begun to accept digital currencies like Bitcoin, which will transform the modes of payments in the next decade. The blockchain technology behind Bitcoin is a great warehouse of venture capital funding. This is happening in tandem with demonetization in India that has already digitized currency.

4. Innovations in hardware

The demand for gadgets and accessories has witnessed an exponential rise. The Indian youth is tech-savvy and connects invariably over social media platforms via electronic gadgets, especially the smartphone. This is where VC investments are subject to a rise amongst interested investors since these gadgets create a universal chain. Gadgets such as GoPro cameras, smart watches, smart speakers and like are quite popular in India. These gadgets yield high returns with minimal investment.

5. Real estate opportunities

Real estate has been at the forefront of investment for a long time now. It has its ups and downs but relatively recent options like Systematic Investment Plans (SIP) have made investing in real estate funds a rising trend on a rise in India. Moreover, Make in India has made it simpler for construction companies and investors alike to reap its benefits. Finally, real estate funds offer a sizeable investment option for VC funds.

Types Of Investors In Private Equity Sector

The field of private equity investment is an elaborate one which requires extensive knowledge and experience to effectively navigate without losing the way and vision. Primarily, every investor needs to know about the two asset classes that exist within the market—public sector and the private sector. The public sector is openly available to the general public and open to investments from all, and if an investor has the right amount of money, they can invest their money to a certain limit in a company. The private sector, on the other hand, is not openly available to a common man. Commonly known as the alternative asset class, private sector includes various kinds of assets within it, namely private equity.

India has a huge private equity sector for investments. The primary reason why these assets are held in such high regard is the fact that they generate high returns in less time. In order to cope with their expenses and expansion plans, every business requires investors from both the asset classes. Each of these classes works in a unique way, but more importantly, there are also various kinds of investors working in this area. Here are a few of the investors that one should know about:

Institutional Investors:

Institutional investors work for a private equity firm that invests in equity and various different kinds of funds. These types of investors do not invest money from their own pocket, but they do not restrict themselves to just providing the capital. Along with that, these investors are also involved in the management, administration and general overhaul of how the company works.

Leveraged buyout investors

They typically buy the controlling stakes alone or in partnership with other PE firms. Most Private equity funds in India find it the most secure method to invest money as they usually invest in companies with a stable cash flow. Yes, this does involve, taking up the little bit of loan but it is worth it as the risk factor is reduced due to the involvement of multiple parties.

Angel Investors:

The name is self-explanatory. It tells us what kind of investors they are, that is, like angels for a businessman. Unlike institutional investors who invest the firm’s funds, angel investors invest their own funds into a company. These are usually wealthy individuals who are looking to make profits by investing in companies with the huge potential to succeed but don’t have the funds to function efficiently and generate revenue.

How Private Equity Works In India?

For most people venture capital and private equity is more or less the same thing. However, there are some remarkable differences between the two. Venture capital is more focused on early-stage companies with high growth capital whereas private equity makes an investment on a much wider range of companies. These firms invest in companies, fuel its growth financially for the first few years and trade it off for a substantial profit after some time.

Private equity firms are no passive minority investors and accept only a large stake in the business. These firms are more interested in taking the reins of the business in their hands. Growth capital in India is also highly benefited by private equity firms in the country in the past few years.

Let’s have a small glimpse at how PE funds in India are dealt with.

Leveraged Buyout

In the case of “Leveraged buyout”, firms use their leverage or borrow their money to boost their returns. The firm usually borrows money from the banks or other lenders and later add money to its own funds or real estate funds to buy a major stake in the company. A leveraged buyout is a good way to reconstruct a company, make it more valuable and later sell all the stakes for profit.

Also known as turnaround deals, such deals help the companies when they are in financial trouble. The private equity firm uses its own money to boost the returns for the company.

Growth Capital

Contrary to the leveraged buyout, In this case, the private equity firm takes a smaller stake and concentrates the growth around that part rather than the overall turnaround. Often regarded as the subset of private equity, it is very much similar to venture capital.
Growth capital or Growth equity is more focused on larger and mature companies and not the early stage companies.

Mezzanine Financing

The term may sound a bit complicated but it is actually quite simple. It is a form of debt that private equity firms take from companies. Mezzanine financing is tad-bit riskier as it commands a higher interest rate. If the company goes bankrupt, the debt gets paid off later than other debt.

Why It Is Good To Invest In Private Equity?

Most white collar employees explore ways to invest their hard earned money which is mostly lying around in bank accounts. For most of the population, a fixed deposit account is the way to go but there are other ways to reap as much as 50% return.

Fixed deposits might be a safe bet but it strips off you from other advantages equally. The first one being that your money is permanently locked for a specific amount of time depending on the duration of your account’s term. Number two problem is that the yield that you receive will be set off due to an effect of inflation.

Equity investment is a great way to reap much more benefits that you have ever expected. Private equity funding is a process that takes money from big and small investors and invests that money in startups and established companies. The term Private equity is generally used to describe all types of funds that pool money through the investors in order to gather a large sum of cash that can be used to acquire stakes in the companies at different stages of their maturity.

Here are some types of equity investments:

• Venture capitalist who only invest in startups to buy stakes that they can sell after the IPO.
• Angel investors are individual investors who invest in startups and are usually the major investor in the company and have controlling stakes.
• Growth equity funds fuel the expansion projects of well-established companies who seek large amounts of money for a particular project that capital intensive in nature, usually required for growth of the company.
• REITs are short for Real Estate Investment Trusts and as the name suggests such funds accumulate money from investors generally with deep pockets and invest in big residential and commercial projects.
• Leveraged buyout funds tend to invest in mature firms with rather stable cash flow generally in partnership with other private equity firms. They typically buy controlling stakes in companies and employ several techniques to create value.

Most of the investment takes place through these funds but the minimum amount that can be invested is usually large which is not suited for small investors. If that is the case then a mutual fund is a very attractive option that yields good returns with systematic investment planning option.

A Deep Understanding Of Private Equity Investment

Private equity is the investment made in private companies or publically listed companies which become private as a result of investment by a single firm or multiple firms. An investment in PE funds can be a very safe and secure to make some prominent profits. It requires proper strategy so that it can turn out to be fruitful in near future. The strategy is planned in various stages which can be planned according to the situation a company is in. The planning is done in stages like the target companies, the sectors for investment, the target geographies, the sectors for investment, and the Added value to the firm.

Types of equity:

Venture Capitals: This type of investment is done in the companies and product which are promising for the future and require an investment in the company. This kind of investment follows a well defines strategy and usually private equity firms in India like to follow this particular approach as it yields good results.

Growth Equity: It is an investment in private equity so as to develop the business to new verticals and expand the growth of the company. This is generally done in growing companies which have gone through its basic phases.

Buyouts and distressed investing are the stages of investment where firms earn more money. Distressed companies are bought out with some investment from firms and some on loan from banks which is paid back from asset liquefaction and cash flow out of the company.

The three major stages of strategy for a private equity firm are:

Fund’s Target Sector

Private equity firms have to realize the basics of investment and target the sectors which are about to grow most in the coming decade. The major sectors for the growth are healthcare, insurance, and technology or real estate in India.

Value Added by the Firm

The firms are an existing business organization in themselves which can guide a new company with its business development. A particular expertise in any field of the firm helps it decide the specialty of the sector they want to invest in.

The Geographical Target

The firms have to realize that what part of the world is most suitable for the type of business they are investing in. The technical companies need to be in big cities while the investment in tourism has to be in the suburbs. The firm which decides upon this swiftly is a profitable organization.

4 Reasons To Choose Private Equity Fund In India

India has emerged as one of the most esteemed investment destinations over the past few years, attracting potential investors worldwide. The credit goes to the stable central government and policy-oriented approach of the Indian Prime Minister, Mr. Narender Modi. It is due to his efforts that India has become a hot spot for Private equity fund investment. Moreover, it is the combined result of high disposable income, increased focus on infrastructure, young demographic dividend and high middle class population which has increased the potential for PE funds investment in India.

While no business can flourish without funds, it is the compulsory interest on borrowed funds which makes funding a troublesome task. The concept of private equity funds is a great solution not only to evade the risks of taking debt but also to permit shareholders to be the legal firm holders.  It is the stakeholders which provide the necessary funds to carry on the operations.  Private equity funds are a secured form of investment with regular payouts and mortgage over cash flows and land. While the risks are less and benefit many, here are a few reasons to choose private equity funds in India:-

1. Long-term investment horizon: – PE funds allow investment for a long period of time, usually 10-15 years at a stretch. This allows the investors to maximize their income and correct short-term losses.
2. Flexible and strong capital base: – PE funds are especially useful for small companies and startups, allowing them to create a strong and flexible capital base. This helps those companies grow substantially. It also leads to steady returns on investments.
3. All time support during ups and downs: – The best part about private equity funds is that they will stay with the company, no matter what the situation is. Even during those tough times when all other alternatives do not support you, PE equity funds will still be with you to help you cope up with the situation. Hence, they promise good returns even when the company is going through a lean phase.
4. Risk diversification: – Investing in stocks is usually associated with three types of risks- sector risk, company risk and market risk. These risks are further divided into systematic and unsystematic risks. While market risk falls into the first category, the other two fall in the latter. Private equity fund, India allows investors to invest in diversified portfolios across different segments. Hence, there is the lower risk in private equity.