Dictionary / How companies make money
What Is Private Equity?
Private equity is money used to buy companies that are not on the stock market, or to take public companies private. The goal is to improve them and sell them later for more.
How private equity works
A private equity firm raises money from pension funds and rich investors. It buys a company, often using a lot of borrowed money. It then tries to cut costs, grow sales and sell the company a few years later, through a sale or an IPO.
Private equity vs venture capital
Private equity usually buys mature companies and takes control. Venture capital buys small stakes in young startups that may not make money yet.
Why it is controversial
Heavy debt can leave bought companies fragile. Critics say some firms cut too deep. Supporters say they fix badly run companies.
Can normal investors invest?
Usually not directly. But some private equity firms are themselves listed on the stock market, so you can buy their shares.
See it in real companies
Open a company to see what it sells and how it makes money.