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Lesson 6 of 7 · 11 min
Private versus public equity: venture capital, buyouts and PIPEs
Private equity trades away liquidity, price discovery and disclosure in exchange for a long-term focus and lower public-company costs; public equity offers deep capital, liquidity and scrutiny.
In short
- Private equity is issued mainly to institutional investors through private placements; there is no active secondary market, no market price, and trading requires negotiation.
- Private issuers usually need not publish financial statements, so fair value is hard to estimate.
- Three types: venture capital (seed, early-stage and mezzanine financing; exit in 3–10 years via IPO or sale), leveraged buyouts (LBO/MBO: buying a public company with heavy debt and taking it private) and PIPEs (private investment in public equity).
- Going private allows a long-term focus and removes costs of being public (filings, investor relations, analyst calls).
- Public markets are much larger and liquid, and public scrutiny pushes companies toward better corporate governance.
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