PRIVATE VS PUBLIC EQUITY: what’s the difference?

PRIVATE EQUITY

PUBLIC EQUITY

KEY INFORMATION

For starters, every business has a different approach of raising capital and attracting investors, the two most popular ones being: debt & equity.

equity= the amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation; Equity allows a company to give investors a share of the business for which they earn returns as the business grows.

Both private and public equity have advantages and disadvantages for companies and investors. Equity is usually not a top priority for businesses when bankruptcy occurs, but equity investors are typically compensated for this extra risk by higher returns. All types of companies use equity to obtain capital and help their business grow. Both private and public companies can structure equity offerings in a few different ways by giving investors different returns and voting options.

PRIVATE EQUITY

Most companies start out as private, but a public company can also sell out its public shares and go private if it finds the benefits to be greater.

One of the biggest differences between private and public equity is that private equity investors are generally paid through distributions rather than stock accumulation. Private equity investors usually receive distributions throughout the life of their investment.

All companies need capital to run their business and the offering of private equity helps companies grow. Often, a private equity deal is done with the intention of the company someday going public.

PUBLIC EQUITY

Most investors are more aware of public equity offerings. Normally, public equity investments are way safer than private equity and show a significantly smaller amount of risk. They are also more readily available for all types of investors. Another advantage for public equity is its liquidity, as most publicly traded stocks are available and easily traded daily through public market exchanges.

Transitioning from a private to a public company or vice versa is complex and involves multiple steps. A company that would like to offer its shares publicly usually solicits help from an investment bank.

In addition to trading individually in the form of stock shares, public equity is also used in mutual funds, exchange-traded funds, and a variety of other investment vehicles ( which we talked about in our previous article, click here to read it😉).

KEY INFORMATION

	PRIVATE	PUBLIC
who can invest?	a minority consisting of private investors and investment companies	the public at large
when can they sell shares?	after a few years, it’s prohibited until then	at any time via a stock exchange
how do investors have a say?	they frequently are involved in strategy development	they remain passive owners and at the most have a say at general shareholders’ meetings
how does the company provide info?	there is no information disclosure obligation	all relevant information must be publicly disclosed
which raise equity?	companies that are still in an early growth stage	established companies typically aspire to go public

You were smart, now you’re smarter, hope you got it! 💳📊🕰