AMMA Private Equity is a boutique Private Equity firm who connect their member network with the ability to invest in tech start-up companies. These companies have the potential to grow to a point of lucrative acquisition or being listed on a stock exchange via IPO.
There are various types of private equity firms, and depending on the strategy, a PE firm may decide to take a passive or an active role in a company. Passive involvement is common with more mature companies that run proven business models simply requiring an injection of funds in order to expand or restructure operations, enter new markets, or finance an acquisition. Active involvement does not necessarily mean the PE firm will run the company’s day to day operations, but it does mean that it will play a direct role in restructuring the company and senior management, provide business advice and support and facilitate relevant industry introductions.
While AMMA are considered to be a ‘private equity’ firm, they are very much a hybrid firm operating across both venture capital and private equity. AMMA take a very hands-on approach to the companies they are involved with, but also focus exclusively on growing tech start-ups, an approach that sits very much in the venture capital space.
While technically venture capital is a subset of private equity, a notable difference is that venture capital firms raise investor capital in order to specifically invest in start-ups and small to medium-size private companies that have strong growth potential. Basically Venture Capitalists focus on sourcing, identifying, and investing in entrepreneurs and start-ups that they believe will succeed in bringing large future returns.
Private equity funds invest and acquire equity ownership in private companies, typically those in high-growth stages. They also use both cash and debt in their investment. Private equity is sometimes confused with venture capital because they both refer to firms that invest in companies and exit through selling their investments in equity financing, such as IPOs.
Private equity firms buy companies from any industry, while venture capital firms normally focus on start-ups in technology, Fintech, biotechnology and clean technology, but both PE and VC invest in companies and earn fees via a percentage of the raised funds banked, rather than by charging advisory fees.
Technically, the term ‘private equity’ refers to money invested in private companies, or companies that become private through the investment. While both PE firms and VCs invest in companies and make money by exiting (selling their investments) they do it in different ways:
- Company Types – PE firms buy companies across all industries, whereas VCs are mostly focused on technology, Fintech, bio-tech and clean-tech.
- Percentage Acquired – PE firms usually buy 100% of a company in a leveraged buyout (LBO), whereas VCs only acquire a minority stake, typically less than 50%.
- Size – PE firms usually make large investments into the acquired company, which can range from $100 million into the tens of billions for larger companies. VC investments are much smaller, often below $10 million for early-stage companies.
- Structure – VC firms typically use only equity whereas PE firms use a combination of equity and debt.
- Stage – PE firms typically buy mature, public companies whereas VCs invest mostly in early-stage, sometimes pre-revenue, companies.
Due to the nature of the investments VCs accept that some of the companies they invest in will fail, but they bank on at least 1 investment generating returns large enough to make the entire fund profitable. As VCs invest small amounts of money in numerous companies, this is an effective model for them to operate with, though it would not work for PE, as they have less investments in their portfolio and the size of the invested funds is larger. With a typical PE model, even 1 company ‘failing’ would potentially cause the entire fund to fail.
In theory, venture capitalists should have a greater incentive to improve a company’s operations because they’re working with early-stage companies. Their direct involvement depends on the acquired company’s focus, the stage of the company and how much involvement the entrepreneur requires or is open to.
There are always exceptions to the rules though, and in some cases:
- VCs use debt to make their investments, especially for larger and/or later-stage investments.
- ‘Turn-around’ PE firms only buy floundering companies and focus on improving operations rather than financial engineering.
- PE firms acquire less than 100% of a company – particularly firms that are ‘growth equity’ focused.
Venture Capital refers to the ‘funds’ contributed by the investors and individuals to support the growth of a small enterprise or start-up company that offers a fresh/new business concept with promising financial prospects. In most cases a company like this would be considered a risky investment by the public. This makes it hard to raise funds via traditional means, so companies in this category may look to source venture capital instead.
VC financing may involve a high degree of risk but typically the people involved are young and qualified entrepreneurs that simply require capital assistance in order to continue to shape their ideas. VC firms are set up to support growing companies in the early stages before they make a public offer, and with the right support they can supply massive returns to the investor.
In summary, AMMA Private Equity work within a unique space where, due to complexities and a lack of public familiarity, there are not many players. Yet with tech start-ups continuing to dominate the US stock market, and big returns being realised for fortunate investors, it is a space worth being in and for Australian investors to have exposure to.
AMMA provide exclusive investment opportunities to sophisticated investors that wish to be involved in supporting tech start-ups that, with the right resources and guidance, have real potential for high returns.
AMMA Private Equity is a boutique private equity company based in Australia. They exclusively connect tech start-up businesses with an extensive Accountant network in order to raise capital.
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