Category Archives: private equity
The private equity market is showing great promise for 2015 and beyond. The choices for new ideas and business concepts are seemingly endless, the entrepreneurs are eager to get their start-ups running and the loan rates are relatively low. Investors have the potential to make huge profits from smart new tech companies that aim to make life easier for consumers. By focusing on a select group of start-ups, venture capitalists can expect to spend more money on fewer investments, but they can also expect a bigger return for their money. Read the rest of this entry
To be a Venture capitalists broker you need money, you need to be considered an accredited investor, and you must know the risk involved. So let’s cut to the chase, how much money do you need to invest in VC? The government declares that you need a net worth of $1 million or a $200,000 annual income to be worthy of risking your capital in start-ups.
Simply put, we took money out of the equation, if you have the money, you’re an accredited investor, then let’s see if the risks are worth it to you to invest in VC. There are a number of risks associated with VC investments. To get a clearer understanding seek a professional’s advice, like that of Efraim Landa. VC investment risks are as followed: Read the rest of this entry
Venture capitalists usually specialize in industries such as computer, biotechnology and the communications industries such as high technology companies including software, biotechnology, medical devices, media and entertainment, wireless communications, Internet, and networking startups. In the last five years, there is a big commitment from VC firms towards clean technology startups which include renewable energy, environmental and sustainability technologies and power management.
As technology progresses VC firms can benefit on the growth of a great startup company, and the company can get funding needed with the support from VC firms. This creates a win/win solution for each because many companies in the technology industry need more funding then most business loans provide. A few examples of companies that got their start from Venture Capital funding are Digital Equipment Corporation, Apple Inc., Genentech. These companies received funding as far back as the 1980’s. Knowing this, Venture Capital is nothing new and here to stay. Read the rest of this entry
An entrepreneur usually starts a business because they feel there is a market for their product or service. The unspoken goal is that the company will grow to the point that they need investors; and hopefully at some point there will be able to go public. Emerging companies will usually look to a private equity firm such as Effi Enterprises, which was founded by an expert in entrepreneurship, Efraim Landa.
An investment is typically made by a venture capital firm, an angel investor or a private equity firm. They all have different types of investment strategies but they provide companies working capital so that they can expand, develop new products or restructure the company on a management level. There are several private equity firms in the United States and a few of them have experienced much success in private equity to foster growth in emerging companies. Here are some brief overviews of some of the top private equity firms in the United States.
TPG Capital, L.P.
TPG Capital is not only one of the largest in the US, but in the world. The company was founded in 1992 by founding partners David Bonderman and James Coulter. They have headquarters in Fort Worth, Texas and San Francisco, California. It has stakes in a wide variety of industries including retail, health care, media and technology. The firm specializes in recapitalizations and leveraged buyouts but the company participates in many other investment strategies. They typically hold on to their investments for 5 to 7 years on average and are active in their holdings when needed. TPG has approximately $48 billion in assets. They have stakes in companies such as Neiman Marcus, SunGard Data Systems, Univision, Freescale Semiconductor and Avaya. The company’s affiliate, TPG Growth concentrates on growth equity and middle-market investments.
The Carlyle Group, L.P.
The Carlyle Group is another worldwide private investment firm. The company was founded in 1987 and went public in 2012. They have over 30 offices located around the world; headquarters are in Washington, D.C. They have made nearly 1000 investments since they were established. They participate in venture capital, leveraged finance opportunities, minority equity investments, real estate and management-led buyouts and specialize in industries such as consumer and retail, technology and business, and energy and power. They have also branched out into various other sectors such as health care, aerospace and defense, infrastructure and financial services.
Kohlberg Kravis Roberts & Co.(KKR)
This is possibly one of the most recognized names in finance and private equity. Their fame came from a scandal surrounding one of the most controversial buyouts ever. They participated in a $31 billion buyout/takeover of RJR Nabisco. The story was immortalized in a bestselling book and later a made for TV movie both entitled Barbarians at the Gate. Although KKR is competitive they are slightly behind many as far as size. They were established in 1976 and have participated in nearly 200 transactions which had a total value of nearly $424 billion.
The Blackstone Group L.P.
If you are talking about alternative asset management and private equity firms, it is certain that The Blackstone Group will be one of the primary topics. Their corporate office is located in New York, NY. Blackstone manages several investment strategies which include real estate funds, private equity funds and hedge funds. But the company also provides other types of financial counsel to their corporate clients as well as restructuring and mergers and acquisitions. Among their clientele are pensions both public and corporate, individuals and financial institutions. Co-founder Stephen Schwarzman also serves as Chairman, Alternative Asset Management, President and CEO of the private equity company.
It is a common occurrence to hear of private equity buyouts these days. While some would like to place it entirely in a negative light, it can be beneficial for the business. Private Equity Firms such as Effi Enterprises may perform these types of financial activities to help recreate the business. There was a large number of leveraged buyouts (LBOs) that occurred in the 80s. It’s interesting to find out what triggered all of these buyouts and what the influencing factors were for their beginning and why they ended. It is also interesting to know the happenings after the companies were purchased. And what about the buyout firms; did firms like Effi Enterprises make any money?
At the very peak of the 1980s leveraged buyouts was Kohlberg Kravis Roberts’ purchase of RJR Nabisco. This buyout became the subject of a book written by two Wall Street Journal reporters, “Barbarians at the Gate.” It became a #1 bestseller in the New York Times. Later it was made into an HBO movie and was called by the same name.
The movie, Barbarians at the Gate retells the events that occurred during the largest leveraged buyout ever. James Garner plays RJR Nabisco’s Chief Executive Officer, F. Ross Johnson who is trying to buy out his own company. Much of the movie surrounds the power struggle between a Wall Street investment banker Henry Kravis and Johnson. Kravis wants to make Johnson take Nabisco over on his own.
It is a story of betrayal, high stakes and power struggles but told with great flair. It is well balanced with some lightheartedness and even playful tones at times. The movie gives us the chance to see a very different point of view of the behind the scenes goings on of leveraged buyouts. Rather than viewing these types of high profile financial transactions as an outsider with little understanding to what is actually going on in the company Barbarians at the Gate allows us to see it from the perspective of an insider. And in this case not just someone inside the company, but the man who sits at the top, the CEO.
It is sprinkled with dry humor, quite a bit of tension and subtlety. It’s a general look at a huge corporate game in which the losers all get $23 million – after taxes of course. The pace of the movie is great and this picks up nicely closer to the end of the movie as the story is building up to the climax. As the characters are all rushing around the audience is caught up in the energy of the moment, whether you already know how the story ends or not.
Screenwriter Larry Gelbart does an exceptional job of making F. Ross Johnson the protagonist. This is a difficult thing to do since he is a rich man who is deviously trying to get ahead of the game, this type of financial slight of hand that is despised by most. Mr. Gelbart is able to make Johnson into a rather likeable character in spite of his dealings. Of course he is made out to be someone who cares immensely for the company and the people and less for the money to be made. And Garner does a great job at playing a character which is mixed with humanity, greed, incompetence and good-naturedness. Kravis, played by Jonathan Pryce makes him out as more of a villain.
These were some very strong and captivating performances which opened up the world of F. Ross Johnson making it visible to the public eye. His morals are very much what is expected from the super wealthy are warped and the movie has several scenes which play this out nicely. The movie does a great job of presenting how he manages and even mismanages the buyout. It’s a high stakes game played between Kravis and Johnson and has all the drama that entails. And even though the vast majority despises such things as financial fakery that ends up with literally thousands of jobs lost, Barbarians at the Gate shares a perspective that is nothing less than thought provoking and entertaining.
Private Equity is funds that are invested into companies that are unlisted. A private equity fund is used by investors and a firm to purchase a company; either private or public. The company generally has great growth potential and sometimes they are either under-performing or undervalued. The private equity firm will invest in the company using many different sources such as time, talent, energy as well as capital to help improve the performance and prospects of the company. They will invest in the company for a few years typically somewhere around 4 or 5 years, but occasionally up to 6 or 7 years. After it has invested and improved the company they will sell the company. Private equity is considered a short term investment in a company that is already established. Of course the hope for this type of investment is that the company is sold for a substantial capital gain. Effi Enterprises is one such company which offers private equity to companies which are in the high tech field or in the medical market. This type of private investing of time, capital and other resources is beneficial for businesses which are in trouble and need help to maintain for a while until a real profit is realized. The main goal of private equity investing is to increase the value of the company so that investors do not suffer loss but end up with a substantial capital gain instead.
Who Can Get Private Equity?
On one hand the answer to this question is any company that is established and has a solid business plan with goals for growth can obtain private equity funding. But it is really a lot more complex. Every fund has its own sectors. In each sector are identifiable areas of growth or very specific expertise. These segments are considered carefully as the ones which can perform well in the market over the short term are the ones which are set apart as having the most potential. Companies such as Effi Enterprises will look at the different sectors separately and try to determine which ones will grow at a faster rate than others. The ones that have the most potential for the quickest growth are identified for investment possibilities.
How does Private Equity work?
It is certainly not a quick process to obtain private equity funding. It can take 6 months, a year or even longer to get it all established. Sign off on this type of deal is done in two stages. The first one is the term sheet phase has to do with the investor which has to outline their specific interests for investing in this particular company and draw up the final contracts. Basically a term sheet begins with an evaluation of the business. It is a rather informal evaluation that would last about 4 weeks. Then the term sheet is issued which lists the intent to invest and lines out all the particular terms. Then comes the confirmation. This entire process can take about 4 or 5 months; it depends on how much needs to be verified.
Private Equity funds are a way of raising capital for a company; but it is not a quick fix. Before the business can go public or seek a buyout there is much work to be done. Each Private Equity team will have its own idea of how it is all going to work together. But the main goal is to sell the company through some means in the end. Usually this will be an IPO or buyout. Investment firms will take their own unique approach to achieving these end results. Many will take a hands-on up close and personal way to help and others will be less involved but supportive. The end goal is for everyone to make a profit.
Whether Private Equity investing has a positive effect or a negative effect on the economy is a big topic of debate right now. There are many who can point out all the positives that occur in the economic structure due to private equity; and there are others who can offer examples of ways the economy has been harmed because of this type of investing.
Positive Effects of Private Equity
If you are working at a very disorganized company which is looking at going belly up, having a private equity firm come in and save it may just save your job. For those whose jobs are saved it certainly looks like a good impact on at least the local economy. Many also suppose that companies which are run privately will perform better than those which are publically owned; largely due to the higher level of accountability which is required. When a Private Equity group or firm invests in a company they will sit on the board as a general rule to ensure that the company upholds a high ethical standard. Many officials cannot let some things slide by when your investors are sitting on the board watching every move.
When a private equity firm invests in a company it is usually one in which they already have a high level of expertise and experience in handling. They are more likely to be able to bring in consultants which can enhance the business and help it be more productive or efficient. They have a vested interest and want a good return for themselves as well as their shareholders. These are also long-term investment teams such as those at Effi Enterprises. They are in it for the long haul and are determined to gain long term profitability. The type of patience required can help them stay with a company for 4 or 5 years or longer until there are higher returns in sight. Private Equity can be very good for every size investor.
When greed gets involved, Private Equity can get ugly. Many times a private equity firm can be bad for a company especially if they try to urge the company to incur much debt. This can be disastrous for an already struggling company. Handling funds this way can be very risky especially for smaller companies.
Another negative effect a private equity firm can have is if they lay of lots of workers trying to make the company more efficient. This does not happen a lot – but it does happen and it yields a negative effect on the economy. And if there are negative effects you will likely never hear about it unless there is something that goes terribly wrong. Private companies do not have to share financial reports; public companies do and must remain very transparent.
Private Equity is said to have created a group of super wealthy people. And the troubling part to many is that they do not pay taxes on this income like most of us do. This is because when money is made through investing you get a much lower tax rate called long term capital gains. A lot of times managers are paid by being allotted a certain percentage from set profits. Since their income comes from a type of interest it is considered investment monies; and therefore taxed at the lower rates.
What do you think?
Is private equity hard on the economy? It seems it works with a small or struggling business to help them become more established and this can be a great boost to the economy and save many jobs. Whether or not it is bad for a particular company may be determined by the firm’s perspective and procedures for improving the company they are investing in. But saving a company and keeping it afloat in a troubled economy is certainly a good thing for all persons involved.
There is a vast difference between vulture capital and private equity. But before the details are given we should look at a brief explanation of vulture capital. The term vulture capital is a slang term that is related to venture capital only in a negative connotation. Venture capital is a form of funding for businesses and especially an entrepreneur. When a business is just getting started a company such as Effi Enterprises will become a funding source so that the business has a greater chance of growing. Usually this is in exchange for a percentage of the company’s profits. The term vulture capital is when funds are placed into a business for the purpose of slowly squeezing the life out of the business. A vulture capitalist will have a primary goal of eventually forcing the company out of business and then selling it for a profit. In pre-Reagan days this was called a leveraged buy outs. However, recently some have tried to say that private equity and vulture capital are the same thing.
Different Investment Purposes
Private equity is an investment into a company. Generally, this investment is done through a private equity firm, an angel investor or a venture capital firm. No matter what category the investment falls into, each company will have its own investment strategies, preferences and ways of setting goals. The main purpose is to provide the funds to help the targeted company continue with expansions, develop new products or they may be used to entirely restructure the company’s management or operation.
Some say that private equity is “no better” than the leveraged buyout. However, in a leveraged buyout the vulture capitalist will buy majority control of a firm or business. Usually an investment in made into a business via angel investors or venture capital firms, not for gaining any control, but for the opportunity of investing in emerging companies or entrepreneurship. They will invest in a company, help get it established and up on its feet in exchange for a portion of its profits further down the road.
Private equity and vulture capital are both ways to pour funding into a business. The main difference is that private equity (and real venture capital) will also be willing to pour time and expertise into the company to help it succeed and grow; whereas the vulture capitalist will have the goal of purchasing the majority of the controlling shares in a company for the purpose of liquidation. They both are looking for a profitable return down the road. However, the private equity firm will obtain their profits from helping get the business established until there is a solid profitability from which they can draw. The vulture capitalist is looking to profit from the yields of a liquidated business which is going under. Most investors are looking to put money into a company like “seed” money in hopes that the company will benefit from the investment and be able to work to provide long lasting profits. Vulture capitalists will try to squeeze everything out of a business and the efforts are not at all aimed at the success of a business; but rather at gaining from the loss. Many Vulture capitalists will actually force businesses to go further into debt or incur new loans until their only choice is to file bankruptcy. At this time the Vulture capitalist will profit from the forced liquidation.
Are they Necessary?
In the real business world there is a place for both the private investor and the true Vulture capitalist. Each one of them can play a major role that helps strengthen the economy. Vulture capitalist can have a positive effect if they give a failing business a way to get out gracefully.
Angel Investing is a type of private investing in which funds are invested into start-up companies. These are much smaller amounts than Venture Capital funds which can range into the billions of dollars. Generally, angel investors invest between 25 and 50 thousand dollars into a deal. Efraim Landa has helped entrepreneurs for many years now by helping them locate this type of funding for an early stage company. One of the latest trends in angel investing is where a group of those interested in private investing pool their resources and capital together to invest in start-up companies. Angel investors look for investing opportunities which can yield large returns in terms of a 10 to 20 time potential return.
Benefits of Angel Investing
As a general rule, angel investors may choose to focus more on local companies. This is not always the case, however many prefer to place these types of investment funds into a local company because this makes it easier for them to become more involved with the company. Companies like Effi Enterprises which offer these types of funding for a company will generally become involved in some capacity with the board of directors. This is so that the company can benefit from their years of business experience as well as learn from their particular areas of expertise. This helps provide stability to the company that they are investing their funds in. It is a protective move for the investor; but also helps the company become better established and solid.
How are companies selected?
Selecting companies to invest in can be an arduous task. It can take a long time for an investor to decide which of the companies will benefit most from the invested funds. Investors are very selective and many times weed out 80 to 90 percent of companies who are applying simply because the company does not meet their criteria. The other 10 percent or so can then be narrowed down to just a company or two that Angel Investors will contribute to. For this reason it is very important that the entrepreneur present a thorough business plan when requesting this or any type of funding. Once the companies are selected a thorough analysis will be made of the company. This is a lengthy process as the business must be evaluated from every possible aspect.
Investing for Returns
Angel investors will contribute to a business that they feel they can get a substantial return from. This means that it is a very tough process. The asking company must be able to establish and explain details on items such as liquidation preferences, anti-dilution clauses and board seats. Angel investors do not want to dump money into a company and walk away hoping it will turn into profits. They are making and investment of their money along with their time to help the company succeed. When the company succeeds, so will the investor. In our present economic climate it can take a longer period of time to realize substantial profits from an angel investment. So they will want to invest in a company which has lower levels of risks. Those who offer venture capital will not require as much from a business, and they will not be as involved in the business once the investment has been made.
Angels who invest in your company will take an active part in helping it succeed. Angel investing is not like a loan any other form of debt financing; it actually gives another party ownership interest in the company. An angel investor will be looking for a company with a huge potential for growth and profits. This will be an entrepreneur who has plans of expanding their businesses. Generally this type of investor will take equity in your company and then when it is sold or if it grows to the point of going public they will take their gain.
Warren Buffett is a household name because of his great wealth. But many of us forget that he amassed this wealth through different forms of private investing and hedge funds. He learned valuable lessons at a young age through investing in the stock market. As he matured he ventured out into various practices in private investing. For many, it seems that having lunch with this very wealthy man would be out of the question. However, each year Warren Buffett sponsors a luncheon that is a fund raiser for his favorite charity.
The GLIDE Foundation
Normally, eating lunch at a higher end steakhouse in Manhattan with nine people would run somewhere around $1000. But this year it cost on investor nearly $3.5 million. That was the final bid on this year’s charity auction in which the winner gets to enjoy lunch with Warren Buffett and the proceeds go to a charity based in San Francisco, the GLIDE Foundation. The charity provides meals, housing and funding for community based clinics. Over the last 13 years the auctions have raised more than $11 million for the group.
The charity auction is conducted online and the winner gets to take seven friends for lunch with Warren Buffett at the Smith & Wollensky steakhouse located in Manhattan. In 2011 a fund manager, Ted Weschler paid $2.63 million to share lunch with Warren Buffett. But after the lunch Weschler was hired by Buffett’s Berskshire Hathaway as an investment manager. He only beat out one other person in last year’s auction in which only 8 bids were offered by just 2 people. Weschler won both the 2010 and 2011 auctions which yielded almost $5.3 million for the charity.
In 2012, there were 10 bidders in all and over 106 bids were made during the 5 days the online auction was open. When it ended, the winner had bid $3,456,789 exactly. This amount will be given to Buffett’s favorite charity and the winner will enjoy lunch with Buffett. Smith & Wollensky also contribute a minimum of $10,000 to the charity to host the lunch.
The goal is not for Warren Buffett to find future employees through the luncheon; it is simply to raise money for his favored charity. While Buffett isn’t looking for new hires through the auction, Weschler did end up getting hired by Buffett last year to help in managing Berkshire’s investment portfolio. Most of the time, the winner of the auction just gets the opportunity to sit and converse with Warren Buffett, known throughout the world as a profitable investor and a leader in entrepreneurship.
Discussions with Warren Buffett
But talk over lunch is not always only about money with this multi-millionaire. Although the big draw for many bidders is Buffett’s amazing business sense and outstanding success in investing, the lunchtime conversation does not center around potential investments. Since Warren Buffett has made such a mark on philanthropy, many past winners have wanted to discuss giving. Since 2006, Buffett has continued to slowly give a portion of his fortune. He wants to eventually divide his Berkshire stock up between five charitable foundations. He intends for the largest portion to go to the Bill & Melinda Gates Foundation.
Warren Buffett and Bill Gates have been trying to encourage extremely wealthy people to give away at least half of the fortunes they have amassed. Almost 80 of the United State’s wealthiest have joined in with this effort.
Auction winners have expressed that the time spent having lunch with the well respected Warren Buffett is well worth the price they have paid. The lunch usually spans several hours and Buffett answers questions as they are posed. Usually, according to Buffett, many of the questions are about non-business topics like family and philanthropy.