By Lon Jefferies; MBA CMP™ CFP®
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Private equity and venture capital investments typically involve ownership of shares in a company and represent title to a portion of the company’s future earnings. However, private equity is an equity interest in a company or venture whose stock is not yet traded on a stock exchange.
Venture capital is typically a special case of private equity in which the investment is in a company or venture that has little financial history or is embarking on a high risk/high potential reward business strategy.
Like real estate, private equity and venture capital investments generally share a general lack of liquidity and a lack of comparability across different individual investments. The lack of liquidity comes from the fact that private equity and venture capital investments are typically not tradable on a stock exchange until the company has an IPO.
The lack of comparability is due to the fact that most private equity and venture capital investments are the result of direct negotiation between the investor/venture capitalist and the existing owners of the company /venture.
With widely divergent terms and provisions across different investments, it is difficult to make general claims regarding the characteristics of private equity and venture capital investments.
Thank You.
Lon Jefferies MBA CMP™ CFP®
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