What You Need to Know About Private Equity


Ordinary businesses focus on survival, but great companies plan for growth. The long-term success of a business often depends on prioritizing an increase in production and sales. Any entrepreneur wishing to grow a business faces the challenge of securing strategic investors. Private Equity firms can provide a company with the financial and expert support to gain a competitive edge. Entrepreneurs must make an informed decision while searching for private equity. 

What Is Private Equity? 

Private equity is essentially an investment fund arising from institutional and individual investors. The investors pool their resources and invest the funds in firms that offer a high return on investment. Typically, private equity firms invest with a fixed timeline, usually seven years, and have an exit strategy. 

What do private equity firms look for while investing? They usually consider the following:

  • The financial history of the business.
  • The cash flow potential of a company.
  • The market positioning of the target business.
  • Potential to enhance efficiency and revenue.
  • The management capabilities in the firm 

Categories of Private Equity

Venture capital funds are mainly available for start-up ventures. In this case, the fund targets typically small businesses with the potential for scale-up given access to financial capital. In comparison, buyouts invest in relatively mature companies. Thus, the motive in buyouts is to take control and maximize business potential through substantial financial investments. 

Existing Private Equity Firms

1. Passive Firms: These firms invest in a company and leave the management to continue running operations and generating returns on investment. Passive firms are ideal for entrepreneurs wishing to retain business control.

2. Active Firms: These firms go beyond financial injection to influence business operations, decisions, and outcomes. Such firms provide their management and networks to enhance the operations of the investment recipient. Active firms are ideal when entrepreneurs look for funds and expertise to grow business.  

3. Investment Banks: These are financial banks that specialize in investment through purchasing and financing businesses. Thus, they compete with private equity firms by offering such products. 

Factors to Consider While Searching for Private Equity

An entrepreneur should consider these factors while looking for a private equity investor. First, consider the nature of the private equity firm. There are pros and cons of partnering with a passive, active, or investment bank, such as control over the business. Secondly, consider the size of the investing firm, which determines the limits of financial capital. Thirdly, a good investor should have experience investing in a line industry. Finally, think through your business growth cycle. For example, it is advisable to look for a venture capitalist for a start-up business.

Private equity funds are not the same. Do you know what investment you are looking for in a private equity search? The success of your business depends on selecting a private equity firm that aligns with your investment needs.


16 April 2021

A Business Consultant Helped My Business Thrive Again

When I quit my job to become an entrepreneur, I decided to open a business in the same industry I had worked in for 20 years. I thought I would automatically make a great business owner due to my experience alone. However, I quickly learned that I was neglecting skills that are needed by a business owner, especially money-management skills. Even though I had many happy customers, I stayed "in the red" for months. I then hired a business consultant who helped me learn how to reduce supply costs and even consolidate my business loans to keep my business afloat. Soon, I began not only "making ends meet," but actually earning a great income from my business. I am eager to share the business tips I learned with other business owners and operators on my new blog!