Week 7B

Question 1

What are the 3 types of private equity?

Answer 1

1. Venture capital (early stage), unproven BM
2. growth equity (growth stage), more proven BM
3. buyout equity (mature stage), PE Investor takes majority stake to restructure management/business

Question 2

How does a PE fund most of the time look like? Who is LP and who GP?

Answer 2

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)

Question 3

How does a VC decision making process look like? (4 steps)

Answer 3

1. pre-investment screening: deal funnel
2. selection decision ‘jockey’ (founder) or ‘horse’ (business idea)
3. evaluation and contracting: multiple of invested capital (MOIC) and Internal Rate of Return (IRR)
4. post-investment monitoring and advising: active ownership

Question 4

Name 4 reasons why VCs are suitable for promoting sustainability

Answer 4

1. investment horizon = long
2. risk appetite
3. engagement / monitoring
4. reliance on qualitative factors: due diligence

Question 5

Name 4 reasons why VCs are less (!) suitable for promoting sustainability

Answer 5

1. size/people/ESG expertise = small
2. risk-return trade off: need to accept lower returns
3. competition with other VCs
4. limited stake

Question 6

What is an LBO?

Answer 6

majority stake is financed by debt

Question 7

What is a distressed PE?

Answer 7

purchase stake in distressed firm with cheap debt, profit from D/E swap or debt repaid