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Lesson 7 of 7 · 12 min
Private equity across the company life cycle: venture, growth, buyout, special situations and PIPE dilution
Private equity is used at every stage of a company's life, from venture capital for start-ups to buyouts of mature firms and special situations in decline, and a PIPE raises equity fast at a discount that dilutes existing shareholders.
In short
- Venture capital funds start-ups with little or no revenue; growth equity funds expansion of firms that stay private and can let early investors reduce concentration.
- Buyout equity acquires and transforms mature firms (an LBO, or MBO if management joins); a buyout of a listed firm is a take-private transaction. The target may also be a private company.
- Special situations are investments in firms facing financial distress or event-driven change, typical of the decline stage.
- Private equity fund investments are held for several years, and returns are realised only when the stake is sold to new public or private investors.
- A PIPE is quicker and cheaper than a public offering but needs a price discount, may need shareholder approval and dilutes existing holders.
- Diluted value per share = (existing market value + PIPE proceeds) / (old shares + new shares).
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