PRIVATE EQUITY/Venture Capital/Venture Capital Trusts/Angel investors
‘Private equity ‘ is a rather grand name which has appeared in recent years to cover part of the role of ‘venture capital’ which in turn is a general term for the supply of finance , normally equity finance , to unlisted companies. The term private equity is normally applied to investment in large companies, often themselves ‘spin outs’ of divisions or subsidiaries of larger companies following an ‘MBO’ (a management buy –out involving existing management) or ‘MBI’ (a management buy-in involving the injection of new management.
Most companies which call themselves ‘venture capital companies’ are engaged mainly at the end of the spectrum dealing with larger companies, viz the private equity end of the business. At the other end of the spectrum, financing start-ups and early stage companies , there are relatively few venture capital companies. This may be regrettable from the nations viewpoint but is also understandable in that :
· early stage investment can be much riskier than investing in an established business
· the time and cost of checking out the viability of a proposed investment is not proportionate to its size
· if you have a large fund to be invested within a timescale you will have a minimum size of investment you are prepared to make, however attractive the prospect may be.
‘Venture Capital Trusts’ (see seperate entry) are listed companies which give some attractive tax breaks to their shareholders and which in turn invest in small UK companies.
Apart from a few specialist venture capital companies the main source of equity for start- up and very early stage companies from the private sector are individual ‘angel investors’, often operating through formal or informal syndicates or groups. See entry on ‘angel investing’
For a fairly comprehensive list of venture capital companies see the BVCA website www.bvca.co.uk
Listed companies investing in private equity: http://www.theaic.co.uk/find_compare/specialistsearch/conventional/list.asp?sector=PE%20&sid=VDC
For a list of Angel groups see British Business Angels Association www.bbaa.org.uk
For tax benefits available for angel investors through the EIS scheme http://www.eisa.org.uk/render.aspx?siteID=1&navIDs=21,97