CAIA - 7 - Private Equity Market Structure Flashcards Preview

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Flashcards in CAIA - 7 - Private Equity Market Structure Deck (99)
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1

The private equity market can be classified in 2 ways:

 

1. ___

2. ___

The private equity market can be classified in 2 ways:

 

1. Organized

2. Informal

2

The ___ PE market is dominated by funds, which serve as financial intermediaries to private companies and are professionally managed

The organized PE market is dominated by funds, which serve as financial intermediaries to private companies and are professionally managed

3

The ___ private equity market comprises angel capital; funding from family, friends and fools.

The informal private equity market comprises angel capital; funding from family, friends and fools.

4

___ investments are made in the informal private equity market than the organized private equity market.

More investments are made in the informal private equity market than the organized private equity market.

5

There are three principal types of private equity funds:

 

1. ___ ___

2. ___

2. ___

There are three principal types of private equity funds:

 

1. Venture Capital

2. Buyout

2. Mezzanine

6

___ ___funds co-invest with entrepreneurs in their new or fast-growing companies that have a promising product, high potential for growth, and are typically in fast-growing technology sectors.

Venture capital funds co-invest with entrepreneurs in their new or fast-growing companies that have a promising product, high potential for growth, and are typically in fast-growing technology sectors.

7

Venture capital falls into 2 stages:

 

1. ___ stage

2. ___stage

Venture capital falls into 2 stages:

 

1. Early stage

2. Expansion stage

8

During the ___ stage, capital is provided to fund research, evaluate ideas, and develop new products. This stage takes place before a company is established.

During the seed stage, capital is provided to fund research, evaluate ideas, and develop new products. This stage takes place before a company is established.

9

During the ___-___stage, additional capital is provided to establish the company and begin product development and marketing

During the start-up stage, additional capital is provided to establish the company and begin product development and marketing

10

The ___ stage is characterized by established companies that need funds to increase growth by increasing production, developing markets, or providing additional working capital.

The expansion stage is characterized by established companies that need funds to increase growth by increasing production, developing markets, or providing additional working capital.

11

VC investmenst are not comparable to traditional financial investments in that they are still in the "___-___" stage.

VC investmenst are not comparable to traditional financial investments in that they are still in the "cash-burning" stage.

12

___ funds use financing to acquire established companies with tangible assets that need capital for changing ownership.

Buyout funds use financing to acquire established companies with tangible assets that need capital for changing ownership.

13

___ ___occur when debt is used to finance a private equity transaction.

Leveraged buyouts occur when debt is used to finance a private equity transaction.

14

___ ___ occur when current management acquires a company

Management buyouts occur when current management acquires a company

15

___ ___occur when outsiders become the new management

Management buyins occur when outsiders become the new management

16

___-___-___transactions occur when a public company becomes private when all its shares are purchased by a PE company and the public company is de-listed from the stock exchange.

Public-to-private transactions occur when a public company becomes private when all its shares are purchased by a PE company and the public company is de-listed from the stock exchange.

17

___ funds invest in established companies that generally cannot get capital from traditional financial markets to finance an expansion or for a transition. Instead, they acquire capital by issuing ___ ___ that has ___ attached or has rights to ___to ___ ___. ___ debt falls between equity and secured debt, provides a relatively stable cash flow, and generates lower returns than other types of private equity.

Mezzanine funds invest in established companies that generally cannot get capital from traditional financial markets to finance an expansion or for a transition. Instead, they acquire capital by issuing subordinated debt that has warrants attached or has rights to convert to common stockMezzanine debt falls between equity and secured debt, provides a relatively stable cash flow, and generates lower returns than other types of private equity.

18

___ strategies provide capital to help established companies recover profitability after undergoing difficulties.

Rescue strategies provide capital to help established companies recover profitability after undergoing difficulties.

19

___ ___, also called ___, acquire a company's shares from another private equity company.

Replacement capital, also called secondaries, acquire a company's shares from another private equity company.

20

Buyout funds use mostly ___ financing, so they tend to perform well when the ___of ___is less expensive.

Buyout funds use mostly debt financing, so they tend to perform well when the cost of debt is less expensive.

21

VC funds use ___ ___ ___as the most profitable exit route, so they tend to have a strong correlation with ___-___indices.

VC funds use public stock markets as the most profitable exit route, so they tend to have a strong correlation with small-cap indices.

22

Compared to VC funds, historical returns of buyout funds have been more ___.

Compared to VC funds, historical returns of buyout funds have been more stable.

23

___ funds invest small amounts of capital in a large number of new businesses.

VC funds invest small amounts of capital in a large number of new businesses.

24

___ fund companies have intermediate stages of completion, typically distinguished by meeting milestones or rounds of financing. Therefore, ___ funds are inherently long-term investments.

VC fund companies have intermediate stages of completion, typically distinguished by meeting milestones or rounds of financing. Therefore, VC funds are inherently long-term investments.

25

___ fund managers often impose strict restrictions on the transferability of their funds' interests.

VC fund managers often impose strict restrictions on the transferability of their funds' interests.

26

___ funds make a small number of large investments in established businesses.

Buyout funds make a small number of large investments in established businesses.

27

Buyout managers are ___ involved in the portfolio companies than VC managers.

Buyout managers are more involved in the portfolio companies than VC managers.

28

Buyout managers tend to have ___ failures, but their upside potential is ___.

Buyout managers tend to have few failures, but their upside potential is limited.

29

___ transactions use mostly equity financing, and ___s gradually gain control of a company through a series of equity investments.

VC transactions use mostly equity financing, and VCs gradually gain control of a company through a series of equity investments.

30

VC managers perform limited ___ due diligence due to the limited history of the companies. Instead, the perform extensive ___/___due diligence.

VC managers perform limited financial due diligence due to the limited history of the companies. Instead, the perform extensive sector/product due diligence.

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