🟠 3 incredible visuals to help you understand Private Equity

This week's SMB Scoop is about Private Equity. Private equity is a wonderful thing. It has created liquidity, increased valuations, and an exit path for small business owners. The result of 'more' private equity has been massive wealth transferred to people who can start and grow small businesses. The trend will continue.

The charts below come from this online report sourced from data company Preqin: Link to online report here.

1. Private Equity Risk/Return

Visual on the 6 different types of private equity below from Prequin below. Preqin has some incredible data. It shows you the IRR and standard deviation by strategy. The return is NET after management fees.

This chart initially surprised me with turnaround private equity achieving the highest net IRR and lower risk (lower standard deviation of IRRs). See the little orange dot (between 18% and 19% net IRR).

What's interesting is the net IRR for buy-out funds is between 14% to 15%...taking typically highly leveraged (5x+ debt) equity risk. Wow!

2. Private Equity/SMB vs Real Estate

Why investors choose to invest in private equity vs real estate is an interesting one. I've always felt they've been two very different mindsets to investing, and this chart really to the question. Pretty clear the motivations of RE is more cash/income focused while private equity is seeking the highest returns.

No investor is the same.

3. Perceived Risk:

As revenue goes up, investment size goes up....risk goes down. Simple but interesting graphic.

Many more visuals to understand private equity:

Take a deeper look at the Prequin source report here.

Accredited Investors: Want to get in the flow of passive SMB and ETA deals? I'm starting a LP/investor list where I'll send you off-market SMB deals through my network.

P.S. I'd love to hear from you. What are you working on? Anything cool? Looking to raise capital? Send me an reply :-)

Ben Tiggelaar