Week 7B Flashcards
1
Q
What are the 3 types of private equity?
A
- Venture capital (early stage), unproven BM
- growth equity (growth stage), more proven BM
- buyout equity (mature stage), PE Investor takes majority stake to restructure management/business
2
Q
How does a PE fund most of the time look like? Who is LP and who GP?
A
Most of the time a fund takes 7-10 years where investors are Limited partners (give equity), and General Partners are responsible for execution (PE firm)
3
Q
How does a VC decision making process look like? (4 steps)
A
- pre-investment screening: deal funnel
- selection decision ‘jockey’ (founder) or ‘horse’ (business idea)
- evaluation and contracting: multiple of invested capital (MOIC) and Internal Rate of Return (IRR)
- post-investment monitoring and advising: active ownership
4
Q
Name 4 reasons why VCs are suitable for promoting sustainability
A
- investment horizon = long
- risk appetite
- engagement / monitoring
- reliance on qualitative factors: due diligence
5
Q
Name 4 reasons why VCs are less (!) suitable for promoting sustainability
A
- size/people/ESG expertise = small
- risk-return trade off: need to accept lower returns
- competition with other VCs
- limited stake
6
Q
What is an LBO?
A
majority stake is financed by debt
7
Q
What is a distressed PE?
A
purchase stake in distressed firm with cheap debt, profit from D/E swap or debt repaid