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Introduction to Venture Capital Private Equity and Stock Buyback

Finance: Investing

Venture Capital

Venture capital is a kind of capital which is invested in a business venture where there is a high risk with regard to future cash flows and generation of profits. Venture capital is invested as equities rather than as loans and the investors expects a substantially higher rate of return to cushion him for his risks and losses.

Venture Capital Private Equity

Private equity is the quasi equity and equity investments in higher growth companies and includes public-private deals, privatization, mezzanine financing and buyouts. Venture Capital Private Equity focuses on youth oriented, rapidly growing companies. The private equity players mostly provide bridge funding.

Venture Capitals have a preference for entrepreneurial businesses which is more about the potential for growth and investment aspirations rather than the current size of the company. Venture Capital Private Equity companies are more interested in companies which display good growth prospects and are managed by ambitious and experienced teams who can implement their business plan and make it a reality.

Stock Buyback

This term is used in reference to the company’s desire to repurchase some of its own shares. The company does so to reduce the number of its available shares in the open market.

This move generally leads to a rise in EPS (earning per share) and monetary returns on the company’s assets. This is indicative of the improved performance and healthy balance sheet of the company. For a major investor, it may increase his stake in the company.

Companies opt for stock buyback for various reasons. It may be to prop up the share value in case they have fallen drastically or to prevent any company takeover or simply as a means of utilizing excess cash.

Companies can buy back shares by issuing tenders which indicate the number of shares the company plans to buy back and the price, or it can buy back shares in the open market.

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