June 10, 2009

Private equity

Writing "define:private equity" on Google, one of the first definitions on the list led me to the website of the New Zealand Venture Investment Fund (NZVIF). I found out that “private equity” includes organisations devoted to, for example, venture capital. On the same website, venture capital is described as "professionally managed, dedicated pools of capital that focus on equity or equity-linked investment in privately held, high-growth company." As I attended a Kalaidos University Forum seminar in Zürich, Switzerland yesterday, I learned more about private equity. Mr. Yessin Schiegg, an employee at Horizon21, gave an interesting introduction to the private equity business. During the seminar, I learned, for example, these 3 things:

1. The functions of an investment professional can be split into 2 activities: Looking for new investments and monitoring existing investments.

2. I also learned about the so-called "J-curve". Mr. Schiegg explained that the management fee and early write-downs are responsible for early negative returns of private equity partnerships.

3. What I found really interesting during the presentation was the story that Yessin Schiegg told about Google. As you will notice on the photo below, Google secured, in 1999, a round of funding that included $25 million from the two leading venture capital firms, Sequoia Capital and Kleiner Perkins Caufield & Byers. You can read more about the equity funding in this Google press release of June 7, 1999.

Studying the website of Sequoia Capital, I found it valuable that you can read about the different companies that Sequio Capital invests in. I learned, for example, that Sequio capital invests in seed stage companies ($100K - $1M), early stage companies ($1M - $10M), as well as growth stage companies ($10M - $50M).

Having a look at the website of Horizon21, for which Yessin Schiegg works and whose strategic partner is Swiss Re, I read, for example, that emerging countries like China and India are the growth engines of the global economy. This is marked, I read, by an increasing demand in commodities, energy as well as natural resources.

Searching for more information about private equity in India, I found out - by reading this report published on Scribd - that private equity investments in India increased considerably since around 2005. In another document, I read that in 2008, there were 160 venture capital firms in India – a number which has grown quite strongly during this decade. In the report, I also read that knowledge becomes the key success factor, for example knowledge about industries to invest in, about possible investees, and about investors.

Speaking of India, I read in this November 2008 McKinsey Quarterly article titled "Nurturing entrepreneurship in India villages", that much remains to be done to connect urban markets with rural ones in order to speed their development. For example, I was quite astonished to read that 89 percent of all rural households in India do not own a telephone, and 52 percent have no domestic power connection. The average village is two kilometers away from an all-weather road, and 20 percent of rural habitations must walk for miles to obtain safe drinking water, have access to it for only a few hours a day for much of the year, or have no access at all.

For a list of venture capital firms, have a look at, for example, Google Directory.
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