PE Deal types

Question 1

PE Deal types

Answer 1

Startup (Early Stage): seed capital, venture capital
Growth (Mid Stage) : growth equity, growth buyout
Mature (late stage) : Private Investment in Public Equity (PIPE), Carve-out/Divestiture, Leveraged Buyout (LBO), Distressed Investment

Question 2

Startup (Early Stage): seed capital

Answer 2

• earliest dollars into a new start-up
• angel investors or VCs
• minority stake in the company (5-10%)

Question 3

Biggest drivers of return for seed capital

Answer 3

• heavy emphasis on revenue or customer/user growth

- achieving profitability or at least demonstrating the potential for profitability

Question 4

Startup (Early Stage): VC

Answer 4

• first institutional money to fund expansion of an unprofitable high-growth start-up
• minority stake 5-10%
• several rounds of funding are common

Question 5

Biggest drivers of return for VC

Answer 5

• heavy emphasis on revenue or customer/user growth

- more emphasis on achieving profitability relative to seed stage

Question 6

Growth (Mid Stage) : Growth equity

Answer 6

• capital to help young, profitable high growth business to grow faster
• typically a minority stake (10-30%) common/preferred equity

Question 7

Biggest drivers of return for Growth equity

Answer 7

• heavy emphasis on revenue growth
• profit margin expansion
• exit multiple expansion

Question 8

Growth (Mid Stage) : Growth Buyout

Answer 8

• same as GE, except a majority stake

- sometimes use small amount of leverage

Question 9

Biggest drivers of return for Growth Buyout

Answer 9

• same as GE, but slightly higher return because of use of leverage

Question 10

Mature (late stage) : Private Investment in Public Equity (PIPE)

Answer 10

• purchase of a large common or preferred equity stake 5-10% in the stock of a publicly traded company

Question 11

Biggest drivers of return for PIPE

Answer 11

• growth of target’s stock price which appreciates in part due to target’s use of cash from PIPE1

Question 12

Mature (late stage) : Carve-out/Divestiture

Answer 12

• similar to LBO, except the investors purchase a part (often non-core) of a bigger company rather than the whole thing

Question 13

Biggest drivers of return for Carve-out/Divestiture

Answer 13

• similar to LBO, but more emphasis given to improving operations of what are frequently under-managed assets

Question 14

Mature (late stage) : LBO

Answer 14

• majority control takeover of the equity of a profitable, mature, lower growth public or private business
• using high debt/equity ratio to fund takeover

Question 15

Biggest drivers of return for LBO

Answer 15

• use of target’s free cash flow to pay down debt
• revenue and profit margin growth
• exit multiple expansion

Question 16

Mature (late stage) : Distressed Investment

Answer 16

• the purchase, at a discount, of the debt or equity of a company at risk of default
• corporate restructuring, bankruptcies, and financial covenant breaches are typical sources of distressed investment opportunities

Question 17

Biggest drivers of return for Distressed Investment

Answer 17

• correctly predicting that the target will not default or helping it to turn around its operations and achieve solvency