Small cap, Mid cap, Large cap: what are the differences for private equity?
In the world of private equity, investment funds are often distinguished by the size of the companies they target. The terms Small Cap, Mid Cap and Large Cap are used to categorize these funds according to the size of their investments and the companies they target. These distinctions are not insignificant: they influence investment strategy, target sectors and even the day-to-day lives of the professionals who work in them. Understanding these differences is essential for any investor or professional wishing to enter this dynamic sector.
Read more: What are the different valuation methods of companies?
Small Cap: Investing in emerging gems
Small Cap funds focus on small companies, generally with investment tickets of between €5 and €30 million. These funds target companies in their growth phase, often growing SMEs or ETIs with strong development potential.
The investment methodology of Small Cap funds is often more active and riskier. Investors take minority or majority stakes and become actively involved in the company's management. They contribute not only capital, but also strategic, operational and sometimes commercial expertise.
Small Cap funds mainly target high-growth, technology-intensive sectors. Among the most targeted sectors are:
- Technology: software, SaaS, fintech, edtech, etc.
- Healthcare: biotech, medtech, medical devices, etc.
- Innovative services: Marketplaces, digital platforms, etc.
Among the best-known small cap funds are Capza, Andera Partners and Bpifrance.
Mid cap: investing in growth companies
Mid cap funds target medium-sized companies, with investment tickets generally between €30 and €200 million. These funds target established companies with proven business models and strong growth potential.
The investment methodology of mid-cap funds is often more balanced between capital contribution and strategic support. Investors take minority or majority stakes and become involved in the company's governance, without necessarily intervening in day-to-day management.
Mid cap funds target more diversified sectors, with a preference for companies with a sustainable competitive advantage. Among the most targeted sectors are :
- Industry: OEMs, subcontractors, etc.
- Services: B2B, B2C, etc.
- Healthcare: Pharma, medical devices, etc.
- Technology: software, SaaS, etc.
Well-known mid-cap funds include Siparex, Bridgepoint and Rothschild Five Arrows.
Large Cap: investing in established champions
Large Cap funds target large companies, with investment tickets generally in excess of €200 million. These funds target mature companies with leading market positions and strong value-creation potential.
The investment methodology of Large Cap funds is often more passive and financial. Investors take minority or majority stakes and have little involvement in company management. Their aim is to make financial gains through organic growth or restructuring operations.
Large Cap funds target mature, stable sectors, with a preference for companies with a dominant position. Among the most targeted sectors are :
- Industry: OEMs, subcontractors, etc.
- Services: B2B, B2C, etc.
- Healthcare: Pharma, medical devices, etc.
- Technology: software, SaaS, etc.
Among the best-known Large Cap funds are Ardian, Blackstone and Astorg.
What difference does this make to your day-to-day work?
Working in funds with different ticket sizes has a significant impact on the day-to-day life of investment professionals. In Small Cap funds, teams are often smaller and more agile, with direct involvement in company management. Professionals need to be versatile and able to adapt quickly to change.
In mid-cap funds, teams are more structured, with a clearer separation between the different functions (investment, support, exit). Professionals must have solid sector expertise and the ability to support companies as they grow.
In Large Cap funds, teams are often more specialized, with a focus on financial analysis and deal structuring. Professionals must have expertise in finance and restructuring, as well as the ability to negotiate complex transactions.
The relationship with entrepreneurs also varies according to ticket size. In small-cap funds, investors work closely with entrepreneurs, with direct involvement in company management. In mid-cap funds, the relationship is more balanced, with strategic support but no involvement in day-to-day management. In large-cap funds, the relationship is often more distant, with a focus on financial and strategic aspects.
The skills required also vary according to ticket size. In Small Cap funds, professionals must have expertise in business management, strategy and operations. In Mid Cap funds, professionals must have solid sector expertise and the ability to support companies as they grow. In Large Cap funds, professionals must have expertise in finance and restructuring, as well as the ability to negotiate complex transactions.
Conclusion
Small cap, mid cap and large cap funds differ not only in the size of their investment tickets, but also in their investment methodology, the sectors they target and the day-to-day lives of the professionals who work in them. Understanding these differences is essential for any investor or professional looking to move into private equity.
Whether you choose to work in a Small Cap, Mid Cap or Large Cap fund, it's important to understand the specifics of each category and adapt your skills and approach accordingly. Private equity offers a multitude of opportunities, and the choice of ticket size will depend on personal preferences, skills and career goals.
