The managers of private equity funds will also invest typically providing between 1–5% of the overall capital.
Often private equity fund managers will employ the services of external fundraising teams known as placement agents in order to raise capital for their vehicles. The use of placement agents has grown over the past few years, with 40% of funds closed in 2006 employing their services.
The amount of time that a private equity firm spends raising capital varies depending on the level of interest among investors, which is defined by current market conditions and also the track record of previous funds raised by the firm in question.
Firms can spend as little as one or two months raising capital when they are able to reach the target that they set for their funds relatively easily, often through gaining commitments from existing investors in their previous funds, or where strong past performance leads to strong levels of investor interest.
Private equity fund performance Due to limited disclosure, studying the returns to private equity is relatively difficult. Unlike mutual funds, private equity funds need not disclose performance data. And, as they invest in private companies, it is difficult to examine the underlying investments.
Venture capital is a type of private equity capital typically provided by outside investors to new businesses . Generally made as cash in exchange for shares in the investee company, venture capital investments are usually high risk, but offer the potential for above-average return
A venture capital fund is a pooled investment scheme that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans.
This form of raising capital is popular among new companies, or ventures, with limited operating history, who cannot raise funds through a debt issue.
The drawback of this form of entrepreneurship is that the investors get a say in the management of the company apart from the equity holding.