Raising capital as a business entity is harder than it looks. Newer investors may struggle to evaluate the right option for their brand — including making a decision between private equity and public equity.
Some business owners see private equity and public equity as two sides of the same coin. But Francois-Xavier Morency, partner at MP Ventures & Trusts and an experienced private investor, says otherwise.
“Private and equity markets are extremely dissimilar, and they should be thought of as unique entities with individual purposes,” he says. “While the term ‘equity’ does mean the same thing in both contexts, the way in which your business achieves success will be drastically different depending on the path you choose.”
Morency, the previous Managing Director of Canadian Operations of Supply Service at A.P. Møller-Mærsk, has decades of experience navigating the complexities of private and public equity. He graduated from the Université de Sherbrooke (University of Sherbrooke) in 1998, and currently holds a degree in chemical engineering. Today, Morency speaks multiple languages to accommodate international clients, and has worked for hundreds of international businesses in transportation and engineering.
As an experienced private investor with a distributed portfolio, Morency believes the power of choice can help startup businesses succeed. Interested in setting the record straight, he sat down with us to explain the differences between private equity and public equity, as well as the impact they can cause on businesses of varying sizes.
Private Equity vs. Public Equity Explained
Morency defines public equity as capital gained by selling shares through a public stock exchange. Private equity, on the other hand, is capital from a pool of investors that does not involve a stock exchange.
The differences between private equity and public equity are easy to see on a superficial level. However, Morency warns that nuances of each category are more complex than meets the eye. Understanding each begins with translating their inherent qualities and differences, beginning with their purposes and legislative requirements.
Understanding Public Equity
Public equity is capital gained through trading on the stock market. A publicly listed company sells portions of their company via a stock exchange, which can be purchased by investors in varying quantities. The company promises to provide a return on their investment while receiving immediate capital for pressing business needs. (Most) Investors in this case are rather passive, relying on professionals to manage the company in their best interests.
Many investors in public equity accounts will invest a small portion of money at a time. The average share price in the S&P 500 sits around $209, meaning a large number of shares must be sold to generate a decent income.
Additionally, businesses cannot go public to investors without reaching certain milestones. Morency suggests reviewing all listing requirements and preparing an initial disclosure statement.
Understanding Private Equity
Private equity is capital raised from high-wealth individuals who decide to invest directly in your private company. Unlike public equity, which can be purchased and traded by any person or group, private equity comes from accredited investors or institutional investors. Many of them invest larger amounts than the typical trader can afford, usually between $250,000 and $25,000,000 depending on the fund and its goals.
Morency believes the key difference between public and private equity lies with their holding periods. While individuals in a private equity fund may invest for five or 10 years, day-traders can buy and sell business shares within the same week.
Private equity is also one of the most performant methods of raising capital. According to a McKinsey report in 2021, private equity funds generalized a return of 14.3% per year over a 10-year period. Public equity from the S&P 500, on the other hand, only saw 13.8% in generalized returns.
Although private equity does provide higher potential gains, it may be more complex to manage without additional guidance. Morency mentions the importance of walking through the process alongside skilled investors and finding solid business professionals with experience in the field.
A Word On Choosing The Right Market
You understand the subtle differences between private equity and public equity. However, a burning question still remains: what type of investment will do the most good for a business’s financial trajectory?
Morency believes the decision should be largely based on plans and goals.
“Private investments are more accessible to smaller businesses than public trading,” he says. “Private equity is an excellent place to begin as a startup and often provides more than just capital – coaching and guidance are often part of the deal. This is why it is a position to stay in for long periods of time.”
Regardless of the market you choose, Morency reaffirms the importance of working alongside seasoned private investors to ensure your company’s goals are met.
“Reaching all of your business goals involves more than just a blind leap of faith,” he says. “Strategizing begins with leaning into all available knowledge, including the advice that comes from veteran investors.”
Francois-Xavier Morency is a veteran investor with decades of experience working with equity investments. He has participated in traditional equity markets as well as startup investing for brands in the earliest stages of growth. He currently act as a trustee for smaller family trusts, and emphasizes the conservative management of assets for long-term results and performance.
To learn more about Francois-Xavier Morency, please visit his Linkedin profile.