Private investment in public entity – Also known as PIPE investments
Private investment in public entity financing takes a big stake in publicly traded companies whose valuations have dropped since going public, and now are seeking new sources of cash infusion to use for business capital.
Angel investors or internal sources will typically be available to fund start-up companies, but venture capitalists want deals with more of a history behind them because they are investing more. They will be more likely to fund businesses with an established business model and a few years of operation. A venture capitalist is more likely to give their money to a company which has discovered a new market or one that has developed a new product or service which targets a large current market.
With private investment in public entity from a venture capitalist, the investor is typically looking for a minimum return on investment of at least 30 percent. A venture capitalist will give money to a company that a regular bank would not, as they will take risks. Their risks are only if there is a potential for high returns.
In summary private investment in public entity investments do the following:
• Apply lower and more realistic valuations to early stage companies
• Supply the funds that the public entity needs
• And use the public markets as the investment exit vehicle
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