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When people think about investing in companies, they usually think of the stock exchange. Yet listed companies are only the tip of the iceberg. Much of the innovation, job creation and value creation happens off the stock market: in start-ups, family businesses and fast-growing scale-ups.
For a long time, investing in such unlisted companies was mainly the territory of specialised private equity funds. Many of those funds work with a fixed term: they buy a company, often finance part of the acquisition with debt, improve profitability and sell it again after a few years.
Alongside this, another model is growing. Investment holdings and entrepreneurial family offices take direct stakes in promising start-ups and scale-ups, contribute experience and networks alongside capital, and hold their participations for as long as it makes sense. This approach, inspired by investors such as Warren Buffett, makes private equity a permanent part of a diversified holding portfolio.
Smart capital: why money alone is not enough
For the founder of an ambitious start-up or a fast-growing scale-up, money is rarely the only thing missing. A euro from one financier buys the same as a euro from another.
What entrepreneurs often lack in crucial growth phases is execution experience, structure and the right contacts. A holding that takes a minority or majority stake can offer more than capital in three ways:
- Organisation and technology: fast-growing companies often outgrow their internal systems. An experienced partner helps with digital transformation, ERP and data infrastructure, financial control and good governance, without slowing down the entrepreneurial pace.
- Network: one good introduction to a key customer, a financier or an experienced manager can save months of searching. Companies within the same network can also become each other’s customers, suppliers or partners.
- A sounding board: growing a company from five to fifty employees, or across borders, is often lonely work. An active holding does not run day-to-day operations, but contributes on the board to decisions on pricing, investments, risk management and acquisitions.
Patient capital versus a fixed term
Traditional private equity funds are usually closed-end funds with a fixed term, often around ten years. As soon as a fund buys a company, the clock starts ticking: to repay its investors on time, the fund has to sell the company within that term, even if it is still growing strongly.
Every sale also comes with costs: transaction and advisory fees, tax consequences and the time needed to reinvest the money. An investment holding working with its own, permanent capital can take a different stance. Warren Buffett summed it up in his 1988 shareholder letter:
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Warren Buffett, letter to the shareholders of Berkshire Hathaway (1988)
Permanent capital offers three advantages:
- No forced sale: if a start-up grows into a healthy, profitable company, the holding does not have to sell it because of a date on the calendar.
- Healthy growth over financial engineering: instead of loading a young company with debt to show a high short-term return, a patient holding can opt for a strong balance sheet, investment in innovation and a lasting market position.
- A partner for the founder: entrepreneurs who have put their lives into a company often prefer a partner that stays involved for the long term.
The risks of private equity
Private equity can create a lot of value, but it is also one of the riskiest domains:
- Many young companies do not succeed: some start-ups miss their targets or close down. The capital invested can then be lost entirely.
- Limited liquidity: you cannot sell a stake in an unlisted company in an afternoon. A sale can take years, or may not be possible at the desired price.
- Valuation: without a market price, the value of a stake is an estimate, which can fluctuate considerably.
- Dilution and concentration: new funding rounds can shrink your stake, and a single participation can carry a large part of the risk.
That is why thorough research beforehand (due diligence), sound agreements in a shareholders’ agreement and diversification across several participations and domains matter.
How private equity fits into the six domains
Because private equity is hard to trade, it does not stand on its own with us. It is part of six domains, each with its own role, horizon and liquidity:
| Domain | Role in the portfolio | Horizon | Liquidity |
|---|---|---|---|
| Private equity | Active value creation through stakes, with experience and network | Long, often more than five years | Low |
| Class A funds | Broad, low-cost core through leading indices | Long | High |
| International real estate | Tangible value, geographic and currency diversification | Long | Low to high, depending on the form |
| Automated trading | Rules-based, active strategies with strict limits | Short | High |
| Commodities | Counterweight to inflation and supply-chain pressure | Cyclical | High |
| Private debt | Loans to companies and projects, with agreements on term and security | Medium | Low to medium |
How the domains complement each other
- Liquid parts make room for patience: because part of the portfolio is easy to trade, a participation does not have to be sold at an unfavourable moment.
- Knowledge is shared: insights from trading, real estate and commodity markets, and experience with data and automation, can also benefit the companies we invest in.
- Proceeds are put back to work: when participations pay dividends or other domains generate income, it can be redistributed across the domains, or go to new participations.
How we see it
At Vermeeren & Van Haute, private equity is one of the six domains in which we invest for our own account. We take targeted stakes in unlisted companies, from start-ups to scale-ups, and contribute our experience in digital transformation, strategy and entrepreneurship, as well as our network, alongside capital. We choose long-term partnerships, with realistic expectations.
This article contains general information and is not investment advice, an offer or a recommendation. Investing in unlisted companies involves high risks, including the total loss of the capital invested and limited liquidity. Past returns are no guarantee of future results.