By definition, private equity is an evaluation of companies that are not publicly traded. For private entities, the market mechanism is nor present. So it takes another valuation to estimate the value. Most investments are publicly traded, sometimes available by looking at the company’s share price and the market capitalization. Therefore, the accounting equation follows the stated equity on the balance sheet during liabilities subtraction. Thus, the company could estimate the book value.
So the private companies can look for investors by selling their shares straight to the private placements. The epitomes of equities are pension funds, university endowments, insurance companies as well as accredited individuals. Funds and investors specialising in direct investment in private companies usually buy these equities. This is because they have the direct engagements to Leveraged Buyouts (LBOs) in the public companies.
The transaction in Leveraged Buyouts occurs when a company gets a loan from a private equity firm. Sometimes, the fund is for funding the acquisition of a division of another company. The acquired cash and flows of the assets sometimes would secure the loans. This is to note that private equities work in many ways following the company’s cycle.
Sometimes, a start-up company with no revenue or earnings can’t afford to borrow. Thus, the company must receive capital from friends or family. The company could sometimes get it from angel investors. Venture capitalists are present when the company could finally launch the product and market it. Some companies like Amazon and Meta started the company with venture capital funding.
