Question

In this subject, you have studied private equity, investment banking and venture capital funding. Can you draw a matrix capturing the differences among these including when a given business would go in for these with reasons

Answer 1

A. Introduction:

• Every company at some point or the other, needs to borrow some capital and include such outside capital in its business & growth process.
• The route available with the companies for raising outside capital depends on the industry in which company operates and also depends on its growth process.
• Private equity providers, Investment Bankers, Venture Capitalist operates in similar fashion, helping the companies with its financing requirements for operations, growth & expansions.

B. Let us understand the differences between the three with the help of the below table:

Particulars	Private Equity	Investment Banks	Venture Capital Fund
Description	This refers to the funds or money that High Networth Individuals (HNI's), group of wealthy people directly place in Private Companies,thereby purchasing a company together. These investors gain the ownership in the business and acquires a level of control.	These banks work as an intermediaries between companies in need of capital and financial market. They help companies making decisions regarding Mergers & Acquisition, Expansion & Restructuring.	These funds usually look in to invest in young companies, that in many cases have no revenue but has a good potenial ideas, technology and significant growth potential.
Respective roles	They work with a vision of maintaining a company for a specified period of time (doesn't aim to keep the company for lifetime), improving its margin and then selling it off at huge profits.	Helps its clients in arranging finance, to raise money in capital market (playing role of underwriter), raise money through private placements, assisting in mergers and acquisitions (including pricing the offer) and providing various financial advisory services (strategic planning and dealing).	Helping the start-ups with the requisite resources which is needed, to get off the ground and grow in real terms. They expect the companies to grown in short as well as in long run, providing the Venture Capital its share of profits along the way.
Advantages	They mostly invest in companies that have exponential growth prospects and potential and those who need a change in management structure. Therefore, end result and amount received on sell of investment is huge.	Its an ideal option for companies coming up with IPO's or companies interested in selling its business. Investment bankers uses its networking and market knowledge for finding potential buyers and enabling an efficient and an effective restructuring process.	Provides valuable expertise and guidance to the freshly created start-ups, giving them most resoucers and opportunity for expansion and helping them in building the networking and connections in industry.
Disadvantages	On choosing private equity, a company usually gives up 100% of its equity.	Investment bank would become unsuitable option for companies having sole desire to obtain capital without restructuring activities or without undertaking any sort of merger options.	They may require the start-ups to give as much as 50% of its equity and earn seats on the start-up companies board, thereby diluting the ownership & control of young companies.
Types of Companies using various routes	To be eligible for PE, a company must be matured and have proven track record. On the other hand, most companies who are struggling and inefficient in its working also considers to take PE deal route.	Companies determined to get capital, change its structure or operations of business (restructuring) can greatly benefit by communicating with Investment bankers, who in return would provide advisory help and other services.	Young, dynamic, tech-enabled companies with well articulated business and marketing strategies, not necessarily at profitable stage.