Diversity of Private Equity Funds

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Diversity of Private Equity Funds
PE/VC Bootcamp October 2008 Bader Alam Chris
Carter
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Agenda
Goal Give you an overview of the PE industry to
guide your additional research

• Private Equity Overview
• Buyouts
• Venture Capital

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What is Private Equity?

• Any type of equity investment (i.e., stock of a
  company) in which the stock is not freely
  tradable on a public stock market
• Institutional investors (e.g., pension funds,
  university endowments) may invest in private
  equity funds, which are in turn used by private
  equity firms for investment in target companies
• Categories of private equity investment include
• Leveraged buyouts
• Venture capital
• Growth capital
• Angel investing
• Mezzanine capital
• Private equity funds typically control management
  of the companies in which they invest, and often
  bring in new management teams that focus on
  making the company more valuable
• Private equity investments are typically sold
  through an initial public offering (IPO), sale to
  strategic buyer, or a sale to another private
  equity firm

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Private Equity deals span a wide spectrum
VC-backed company outcomes
Many of these have quietly failed
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Key traits that distinguish PE funds
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Private Equity financing types
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Private Equity geographical distribution
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Agenda

• Private Equity Overview
• Buyouts
• Venture Capital

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Buyouts fund deal sizes
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Buyouts strategies
Geographical Focus
Industry Focus
Deal Size Focus
Operating Focus

• Based on distinct advantages within a region of
  the country or area of the world
• Many emerging markets targeted as high growth
  areas
• Example KKR European Fund

• Based on partners expertise within a particular
  industry
• Allows for deep relationships within the sector
  that results in proprietary deal sourcing
• Example Gordon Brothers Merchant Partners
  (consumer-focused)

• Based on understanding of deal dynamics within
  each tier
• See slide before

• Some funds just act as financial sponsors while
  other funds like to get highly involved with the
  company
• Often determined by makeup of professionals at PE
  firm
• Example Audax Group

Firms pursue some combination of these strategies
to maximize their return to investors
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Buyouts fundraising
US LEVERAGED BUYOUT FUNDRAISING VOLUME
in billions
Source The Private Equity Analyst
Leveraged Buyout fundraising reached an all-time
high in 2007
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Buyouts returns
OUTPERFORMANCE BY FUND TYPE
As of December 31, 2006
Source Thomson Venture Economics/National
Venture Capital Association
Buyouts have outperformed the SP 500 over the
past 20 years
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Agenda

• Private Equity Overview
• Buyouts
• Venture Capital

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VC fund deal sizes
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VC strategies
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VC industry and stage distribution
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VC geographic distribution
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Venture Capital Most Active Firms Q2 2008
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VC recent performance
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VC liquidity trends
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VC fundraising and investment activity
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VC current affairs