Private Equity (PE) is investment in mature private companies that are not listed on the stock exchange. Unlike Venture Capital, PE invests in established businesses with real revenues, established teams, and proven business models. The objective is to buy the company, improve it over 4–7 years, and sell it at a higher price — to another fund, a competitor, or via an IPO.
Why does it work? PE funds have the ability to operationally transform the companies they acquire: they professionalise management, reduce costs, expand into new markets. That improvement, combined with financial leverage, is what generates the returns.
A PE fund buys a chain of 15 dental clinics billing 8 million dollars a year. Over 5 years it professionalises management, opens 10 more clinics, and optimises processes. The chain now bills 25 million dollars and is sold to a hospital group for 5 times what they paid.