Private equity

Private Equity is an alternative investment asset class. It refers to an investment in shares of a private company which have not been admitted for trading on a recognized stock exchange. Private Equity is not typically being offered by banks as part of their discretionary investment management mandates and fund structures. Broadly, access to this type of investment is limited to Ultra and High Net Worth Individuals, Family Offices and Institutional Investors. The expected returns are more attractive than those of exchange-traded securities. However investments into Private Equity are usually illiquid until an exit strategy has been identified. Also the investment risk is sometimes (but not always!) higher that publicly traded companies.

Private Equity is an ideal way to diversify a a portfolio that has a predominant exposure to exchange-traded equities and/or traditional bonds. Private equity has low correlation to the MSCI index and other traditional asset classes. It is also an ideal solution to reduce exchange-traded volatility in a portfolio.
BUSINESS CASE
MARKET ENVIROMENT
EXIT STRATEGY
MANAGEMENT TEAM
VALUATION

The criteria to look at when considering investments into private equity are no different than a public company. However, the last point “Exit Strategy” is crucial!
Private Equity is not a liquid investment so if there is no clear exit strategy in place, an investor may not be able to monetize his investment. The most common exit strategies are a Trade-Sale or an IPO (Initial Public Offering or Listing on a stock market).

Our Approach

Private Equity as an alternative asset class usually offers higher rates of return than secondary investments into publicly-traded companies, fund structures or bonds. Investments in private companies, due to their illiquid nature or (sometimes perceived) higher risk are offered at a discount to their true, intrinsic value. This creates an additional premium return when the investment is exited through an IPO or a trade sale of the business.

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Phase 1

Venture / Start-up

Once we establish that we want to pursue a specific business idea, we fund it ourselves. 100% of the initial seeding comes from our own liquid resources. We provide funding in the form of equity. We do not believe a business should start with debt. It would be impossible to flourish under such burden imposed from the outset.

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Phase 2

Start-up with a proven model

Once the business has taken shape and shows good prospects for success, we proceed with a Phase 2 equity funding but also invite close institutional business associates or even friends and family* to participate in this round of financing. This happens once the business has met our strict criteria and has proved itself that it is lined up to become a successful business enterprise.

Again, financing is only in the form of equity. Although the business is operational, it is still far from achieving positive cash flows. At this stage it would not be appropriate to saddle the business with debt.

* This is done only to the extend allowed by applicable private placement rules.

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Phase 3

Growth

After successfully closing the second round of financing, the business is in its growth face. At this point capital sourcing is still essential. We invite High Net Worth Individuals, Institutional Investors and Fund structures to invest. This is where the typical private equity investor allocates capital to our business ventures.

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Phase 4

Preparation for exit

At this point our focus changes to planning for exit options for investors that may have changing priorities. Our goal is to structure an exit at a fair market value that also rewards our early-stage investors properly for the risk and patience they have taken during their investment cycle. Any last capital requirements may be met by a combination of equity and/or debt (with short maturity periods). Provided the gearing ratio is reasonable and will not damage the market value of the business, we may allow some debt to be assumed. This may also be an opportunity for investors with a more conservative risk profile to invest, albeit investments at this stage appear only in limited cases.

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Phase 5

Exit

The exit strategy takes place. Usually this is a trade sale or an Initial Public Offering of the shares in the Company.

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J/F Kennedy Street 6
3106 Limassol | Cyprus
info@hessgroupinternational.com