Equity capital not traded on a public exchange. When institutional and accredited investors either participate in buyouts or directly invest in private companies (that have not yet participated in the initial public offering process), they are granted private equities. Until a company goes public, all of its shares are treated as private equity. Many early-round investors benefit from private equity shares, which are less regulated than public shares are. Startups often benefit from offering private equity in an effort to attract both investors and top talent. Without private equity, many early-stage companies would not be able to get off the ground.
Once a company goes public, some or all of its authorized shares may be made public; in addition to the issuing company providing a number of shares for public trading, private investors may choose to sell their shares and make them public. Until that time, if a share was issued privately, it remains privately held until it is sold and made available on a public exchange. Private equity funds specialize in this alternative class of investments.
Startup Founder: “I want to be careful about how much private equity we offer during our initial rounds of funding. Yes, I want to raise capital. But I also don’t want to dilute the power of our existing shares just yet.”
Startup Co-Founder: “And I want to be careful about what we choose to offer in the office cafeteria. It really bothers me when I’m having a meeting with someone and they smell like garlic from that day’s lunch. OR WORSE, a garlic bagel from breakfast.”
Startup Founder: (Blinks.)