Private Equity, in finance, is an asset class consisting of equity securities (stocks) of companies that are not publicly traded on a stock exchange. The shares of these companies are offered to accredited private investors. This type of investment is called Private Placement.
Investing in companies before they go public
Before a company goes public there are several financing rounds. For example, a first round could be at $0.50 per share, a second round at $0.75 and a third round at $1.00. If the price of the initial public offering (IPO) is at $1.50 per share, then any investor that participated in the first three rounds of financing has already made a substantial gain. After the IPO, the stock trades in the market at higher levels. By investing into a stock and participating in the first few financing rounds, an investor takes advantage of the lower price levels. If the company is successful, no one will experience higher returns than the initial, pre-IPO investors.
Investing when the share price is at its lowest
Using Private Equity, investors are able to participate in the beginning of a new venture when the price of a share is at its lowest. Just as it would have been a good opportunity to own shares of Microsoft before it went public, we offer shares of promising new companies. The investor is involved at the beginning of a new venture with a high return potential.
Usually, the investment horizon is relatively short – anywhere from one to three years. There are also no price fluctuations during the private phase.
Why Private Equity with IFS?
The performance of stocks
In the long run, stocks outperform all other asset classes. When comparing the stocks of smaller companies with those of larger companies, it is evident that there is more room for growth in smaller companies. McDonald’s, for example, is unlikely to double in value in one year. However, a smaller company can double, triple or grow even more.
When correctly implemented, Private Equity adds a dynamic element to any portfolio strategy. Generally, the higher return potential of Private Equity investments are also associated with a higher degree of risk.
This is a normal occurrence in the business world.
Statistics show that 85% of new companies fail in the first three years. The main reason is lack of capital. Other factors include the inexperience of the management team and poor strategic positioning of the companies’ products or services.
This is where IFS comes in. We strive to eliminate all the factors that increase the risk of failure. Foremost, we only work with companies that have exceptional products or services. Then we provide financing, management consulting, strategic planning and marketing development.
Finally, to ensure a successful exit for our investors, we create the right share structure and assist in taking the company public. As a Private Equity specialist we help investors to sell their shares once companies are listed and trading.
In every case we maintain control of the projects we finance.
We finance several projects per year by raising money from private investors. Then, to ensure solid returns and a safe exit for investors we guide the company through the IPO process. This process, if done correctly, can have the highest return on investment in the stock market.
The average brokerage firm invests its clients’ money into stocks of all kinds of companies in which they have absolutely no ability to influence the strategy and performance. Then they hope for the stock to rise. This is not the proper mindset for investing into a stock.
At IFS we have a team dedicated and focused on one thing: getting the highest possible return on investment for our clients, using the vehicle of Private Equity.
“Our aim is to greatly enhance investment returns by adding exciting Private Equity opportunities to our clients’ portfolios.’’