The key characteristic of private equity finance is that investors hold their investments only for a limited period of time. The key goal of VC funds is to grow the company to a point where it can be sold at a price that far exceeds the amount of capital invested. This process is called an exit or divestment. There are three basic types of exits: going public, being acquired by a larger corporation, a sale to a third-party investor.It is a widely believed and accepted proposition in private equity literature that the initial public offering of a private equity portfolio company is the most successful and profitable exit opportunity. However, according to the few sources of literature, public offerings are not the preferred divestment type for venture capital firms. Going public is one of the most critical decisions in the lifecycle of a firm. This is not easy, as the process is very comprehensive and complex. Hence, a lot of considerations should be taken into account. Because every investee firm is different, a development plan to achieve a successful exit takes into consideration a number of macroeconomic and microeconomic factors. Moreover, several advantages and disadvantages of exit through an IPO could be indicated. The objective of this paper is to show the success and profitability of going public by VC funds. The VC’s exit type as a way of cashing out on its investment in a portfolio company is a consequence of the exit strategy, which means the plan for generating profits for owners and investors of a company. While an IPO is the most spectacular and visible form of exit, it is not the most common one, as historically in the US it was, but still in Europe it has not been yet. There will be both literature and statistical data coming from different studies and reports used in this research.
Private Equity Portfolio Company Fees