Question

Corporation Finance question

Discuss the difference between angel investing, venture capital, LBOs, private equity. Include 2 companies in each category and list some of their investments.

Answer 1

• Angel Investing : Angel Investing is a term that is used to describe a high net worth Individual who provides financing to young companies at their early stage in exchange of the common equity ownership in those companies. Not all startups benefits the angel Investor but the one's who do benefit them, the return is significant number of times their Investment.  Some angel Investors are like Mr Rajan Anandan (Investment portfolio- Rapido, Unacademy ) , Mr Vijay Shekhar Sharma (Investment portfolio - Unacademy, Flyrobe).

• Venture Capital : Venture capital is type of firm which provides financing to young age companies in exchange of equity stake in those companies. Venture capital is different from the angel Investing in the sense that venture capital firms pools money from other large investors and Invest money on behalf of them. Some of the venture capital firms are Helion venture partners ( Investment portfolio -Yepme, Makemy Trip), Accel partners (Investment portfolio -FlipKart, Babyoye)

• LBO : LBO stands for leverage buyout. It is a term used to describe an acquisition by firms where they take a significant amount of debt to acquire the company. This is mainly done by private equity firms where a significant turnaround in the performance of the company is possible. They take significant amount of debt to acquire the company, improve the performance by changing the management and exit at high profitability. Some major LBO acquisitions in the history are Energy future holdings acquisition by a consortium led by TPG capital and goldman sach, Hilton hotel by Blackstone group.

• Private equity: A private equity is an investment management firm which uses differnt types of Investment process and provides financing companies to different types of companies at different stages, be it young startup or mature companies. They use different types of investment structure like LBO, growth capital, venture capital. Some private equity firms are Apollo global Management (Investment portfolio - Norweigian cruise line, Caesars entertainment group ), Blackstone group (Investment group - Vivint, Seaworlds park).