Buyouts and expansion capital are the preferred platforms for building equity
The two main ways for venture-capital companies to invest are through buyouts and expansion capital.
Expansion capital, as the name suggests, is money provided to expand, perhaps by buying a new plant and equipment, or expanding into an offshore market.
Buyouts involve a company selling off a business unit to a venture capitalist and, typically, some of the unit's existing management. The venture capitalist structures the deal with leverage, blending in a mix of debt and equity, and proceeds to build the underlying business once it has been spun off from its original parent.
Jamie Paton, director, North Asia, for private equity provider 3i Asia Pacific, said expansion capital had been a main funding platform for venture capitalists and private equity players in Asia over the past five to 10 years.
'Expansion capital is looking to provide money to a company to grow. The investors provide capital to allow a company to expand, either by making an acquisition, building a factory or hiring staff. By providing that capital, the institution becomes a shareholder in that business,' he said.
