Private investment in public entity – Also known as PIPE investments
Private investment in public entity financing takes a big stake in publicly traded companies whose valuations have dropped since going public, and now are seeking new sources of a cash infusion to use for business capital.
Angel investors or internal sources will typically be available to fund start-up companies, but venture capitalists want deals with more of a history behind them because they are investing more. They will be more likely to fund businesses with an established business model and a few years of operation. A venture capitalist is more likely to give their money to a company that has discovered a new market or one that has developed a new product or service which targets a large current market.
With private investment in a public entity from a venture capitalist, the investor is typically looking for a minimum return on investment of at least 30 percent. A venture capitalist will give money to a company that a regular bank would not, as they will take risks. Their risks are only if there is a potential for high returns.
In summary, private investment in public entity investments do the following:
• Apply lower and more realistic valuations to early-stage companies
• Supply the funds that the public entity needs
• And use the public markets as the investment exit vehicle