In recent years, private equity funds have shortened their investment cycles by moving away from traditional private equity investments. In the past, private equity funds were only focused on mature companies that had a long-term exit strategy in place. Nowadays, private equity investments are being made into much riskier ventures with shorter time horizons and higher returns for investors.
Alternative investments like venture capital firms have been making waves in the private equity industry because of their ability to invest quickly in young startups with high growth potential. This blog post will discuss how leading alternative investments shortens the private equity investing cycle!
4 Ways Alternative Investments are Shortening the Private Equity Investing Cycle
The private equity industry is adapting to changing times and is making waves with alternative investments. Here are three ways leading private equity funds are shortening their investment cycles by investing in younger, high-growth companies through alternative investments:
1. Alternative Investments are Offering Quicker, More Nimble Investment Cycles:
Venture capital firms have shortened their investment cycles by being more agile and quicker to invest. They can move much more quickly than private equity funds, which often take several months to conduct due diligence on a company before investing. Alternative investments have also been able to shorten their investment cycles by being more flexible in the companies they are willing to invest in. Whereas private equity funds may only be interested in investing in mature, profitable companies with a long-term exit strategy already planned out, alternative investments do not need these guarantees when investing.
2. Venture Capital Firms are Investing Earlier in a Company’s Life Cycle:
Private equity funds often invest in mature companies and are already profitable. On the other hand, alternative investments are investing earlier in a company’s life cycle- when it is still young and has high growth potential. This allows alternative investments to reap greater returns faster than private equity funds.
3. Investing in Younger, More Risky Companies:
One way private equity firms shorten the investing cycle is by targeting younger, more risky companies. By getting in on these businesses at an earlier stage, private equity firms can reap more significant profits if the company succeeds down the road. However, this can come with a higher risk, as these businesses are less established and may not repay private equity investors and more established companies.
4. Encouraging Debt Financing:
Another way private investment firms shorten the investing cycle is by encouraging debt financing. Private companies take on more debt, so private equity managers can receive their money back faster and still make profits from late-stage investments. While this can be risky for the private companies involved, it can be a very profitable move for private equity investors.