The community that composes private equity and venture capital investing is composed of merchant banking subsidiaries or divisions of large institutions.  

 

These include:

1. Bank Holding Companies;
   
2. Insurance Companies;
   
3. Large Industrial Corporations;
   
4. Investment Banks.  

In addition, there are many free-standing specialized investment bodies that form solely for PE/VC investments. Some of these include publicly or privately-held SBICs, publicly-held BDCs or privately-held funds formed to make such investments such as partnerships or LLCs.  

 

Objective of a Private Equity/Venture Capital Fund  

 

A PE/VC fund generally augments its funding from a limited number of sophisticated investors in a private placement such as:  

1. Public and Private Employee Benefit Plans;
   
2. University Endowment Funds;
   
3. Bank-holding and insurance companies;
   
4. Wealthy families.  

The profits achieved by the fund are then split between PE/VC professionals and capital providers/investors on a pre-negotiated basis.  

 

Typically 20% of the new profits go to the PE/VC professionals as a carrier interest, while the remaining 80% going PE/VC professionals and the capital providers in proportion to the capital supplied.  

 

There are a variety of different transactions that professional PE/VCs generally plan and execute that include:  

1. Start-ups;
   
2. Growth-equity investments;
3. Leveraged and management buyouts;
   
4. Leveraged re-capitalizations;
   
5. Industry consolidations;
   
6. Troubled company turn-arounds.