What is Private Equity?

Volition Capital Investments Limited is a private equity company that helps the honest and hardworking create wealth. You must know this part of the gist already. But are we assuming you know what it means? No, we are not. And that is okay. You may not really know what we’re about. So this is why this post is important. Today, we’ll answer simple but important questions. Questions with expository answers too. And in the end, you’ll know about private equity and what we do. So keep reading!

What is Private Equity (PE)?

Literally, private equity is a stake in a company that does not have publicly traded shares. Before a private equity firm invests in a company, they raise capital from investors called limited partners. This capital is used to form a private equity fund. Once they hit their fundraising goal, they close this fund. The investments these partners make come with a maturity period called an investment horizon that typically ranges from four to seven years.

The stake is eventually sold to another company or investor at a profit. This sale is called an exit. Finally, it distributes the profit from the sale to its limited partners. Then it does this all over again. And that, friend, is the summary. But there are more questions!

What are the types of Private Equity?

Leveraged buyouts and venture capital are the most popular types of private equity funding.

• Leveraged buyouts:

This is the most popular form of private equity funding. It involves buying out an entire company with the objective of improving its business and reselling it for a profit. A private equity firm identifies a target company and then creates something called a special purpose vehicle (SPV) to fund the buyout of said company.

• Venture capital

This one is the most innovative though. Here, investors (also called angels) provide capital to entrepreneurs. Venture capital is called different things depending on the stage it is provided. If it is provided to scale an idea from a prototype to an actual product, it is called seed financing. Early stage financing enables a company to grow further while Series A financing helps it become competitive.

There are important differences between private equity and venture capital though. Venture capital is usually invested in unproven but promising companies. Meanwhile, private equity is invested in established businesses.

Why Private Equity?

PE firms can be flexible. Management is able to experiment with strategies that can turn a company around without the glare of public markets.

How do Private Equity firms make money?
PE firms charge management fees and performance fees. Management fees are usually charged at 2 percent for managing the assets in a fund while performance fees are usually 20 percent of the eventual profits gained from the sale of a company. Capiche?

How is Private Equity doing in Nigeria?

Quite well. Between January to February 2019, the Nigerian private equity space recorded investments worth N277.65 billion ($767 million) in deals. This was of course dominated by Coca-Cola’s acquisition of Chi Limited, a deal worth about $500 million. Also, the merger between Access Bank and Diamond Bank which was worth $200 million. Private equity has been useful for fundraising, investments and equity acquisitions. Venture capital has propelled Nigerian startups these past years, reaching $600 million in 2019. In Nigeria, private equity funds are funded by institutional investors like pension funds, sovereign wealth funds, insurance companies, financial institutions and HNIs (High Net-worth Individuals).

Enter, Volition Capital!
Now that you understand the basics, let’s bring it back to us. How do we do what we do? Through cooperatives, venture funds, debt finance, deal flows and investment education. What exactly do we do? We manage cooperatives, assess viable investments, help institutions raise funds and connect investors to opportunities. And oh, we offer courses and investment plans. All because we what? Because we care! But remember, we do not take investments from the general public. We invite you to join our mailing list though. We have even more information that tells how we help businesses!

And that’s all for now. Stay glued until next week!