This book explores private capital markets, the last major uncharted financial markets. Private markets contain millions of companies, which generate more than half of the gross domestic product (GDP) of the United States and the world. Yet these markets are largely ignored, partly because of the difficulty obtaining information and partly because of the lack of a unified structure to approach them. This work offers such an approach. It provides a theoretical and practical framework that enables readers to make sound investment and financing decisions in the private capital markets.
A capital market is one in which businesses can raise debt and equity funds. Since the 1970s, public capital markets have received almost all of the attention from academics in the literature.1 In 2004, the first edition of this book challenged the assumption that public and private capital markets are substitutes, showing instead that the two markets were different in most meaningful ways. Specifically, 12 factors differentiate public and private markets:2
1. Risk and return are unique to each market.
2. Liquidity within each market is different.
3. Motives of private owners are different from those of professional managers.
4. Underlying capital market theories that explain the behavior of players in each market are different.
5. Private companies are priced at a point in time, while public companies are continuously priced.
6. Public markets allow ready access to capital, ...