By Jenny Shi
Entrepreneurship is a diverse field with a strong focus on the ability to develop and organize a business enterprise. On February 4th, Heather Hubbard, a Managing Partner at Valesco, came to speak with YES about private equity. She introduces the concept of private equity, discusses the investments in private equity, and outlines the criteria and experience of her private equity firm, Valesco.
Private equity is the investment of equity capital in private companies. Private equity firms invest the money they collect from investors by working with company executives to make the business portfolio more valuable and grow to sell later at a profit. The funds required for private equity are typically raised from institutional and accredited investors. Unlike investing in public equity, private equity investors tend to have more influence over the operations of the business. In turn for the control over the company, private equity investments are less liquid(cannot be easily converted back to cash) than publicly traded investments.
Private equity can help diversify a portfolio business across many areas to assist the business to grow. There are four main types of private equity investments Heather Hubbard discusses. Angel/Venture Capital investors invest in early-stage/startup companies by providing seed funding in exchange for a minority equity ownership interest. This is risky since companies are usually not profitable yet and have high failure rates but their successful investments are substantially beneficial. The second type of investment is growth equity investments in mature, established and growing companies. They usually use less leverage than buyout firms and receive a minority equity position. Traditional buyout investments are made with established businesses and use leverage to take majority equity stakes. The goal of traditional buyouts is to improve the profitability of the businesses to grow the business as much as possible before selling it. It typically is classified as lower middle market, upper middle market, or mega fund/large cap depending on the transaction size from the annual revenue amount. The last investment type occurs when private investors invest in publicly traded corporations meaning anyone can buy shares/stocks of the company. This is the least risky type but provides less profit for investors.
Lastly, Heather Hubbard explains the criteria for Valseco investment. Every private equity firm has to have its own requisites and standards when choosing portfolio businesses to invest in. Valesco invested in successful manufacturing, and business service companies based in the US seeking to grow and expand in their industry. Some characteristics include a growing and profitable business, a scalable business model, barriers to entry, sound fundamentals, and high discretionary cash flow. For transactions, Valesco focuses on recapitalizations, buyouts, and growth situations. Majority and minority equity positions and subordinated debt investments are the main transaction types. A few examples of Valesco’s influence on businesses prominent in today’s market include Drug-Free Sport, Adam’s Flavors, Foods & Ingredients, and T-H Marine. There is all business that expanded and improved with the investment of Valesco.
Private equity is a mix of operations and finance. Private equity firms help improve established businesses through analysis, research, and management. Private equity is a critical source of financing for companies in emerging market economies.
After the main speaker’s speech, YES members who participated in the recent YES events spoke about their experiences. Sally Wang and Alice Cai presented the Chinese New Years arts competition event in which the first and second-place winners were both present at the YES meeting. The event was fun and a great way to explore the culture and the arts, and connect with the community. The other New Years event was volunteering at the Richardson Chinese New Year Gala where YES members helped set up the event by greeting VIP guests and organizing the venue. During the evening, the performances began and it was an amazing way to present the cultural aspect of the New Year.
Lastly, YES members grouped together to work on their business plan workshop. We discussed multiple business proposals and each group presented its ideas. The YES president presented a slideshow about business plans. The main point of a business plan is to discern our purpose and what we hope to achieve through this business. Next, we need to gain a rough idea of the kind of product or service we want to build on. Then analyze of the market and competition surrounding the product/service is needed to understand the business strategy and goals.