When markets get shaky, endowments and high-net-worth families often turn to private equity, seeking stock-market-like upside with less direct market exposure. Fred Hubler breaks down the three main types of traditional private equity investors typically encounter.
Venture capital (VC) involves investing in early-stage startups, the riskiest form of private equity, though diversifying across multiple startups increases the odds that one big win compensates for the failures. Leveraged buyouts (LBOs), the most recognizable private equity deals, involve firms raising significant debt, typically around 90% of the purchase price, to acquire a controlling stake and restructure struggling companies; the leverage can amplify both returns and losses. Growth equity (GE) targets growth-stage businesses with more financial history than VC startups but less than LBO targets, with firms typically seeking minority ownership so companies can raise capital without going public.
The key distinction: these three strategies sit at different points on the risk spectrum, from the highest-risk startup bets of VC to the more established, minority-stake approach of growth equity.
See the full comparison of these strategies on Forbes: Private Capital, The “Nice” Private Equity Investment Strategy