If you have a revenue generating company that’s been operating for a couple of years, and you’re interested in taking it through to the next stage of growth – whether it’s some cash injection or a complete overhaul – then consider looking into partnering with a private equity investor.
First of all, what is ‘private equity’? In short, it’s finance provided by investors in exchange for an equity stake in the company. Private equity (or PE for short) is generally associated with mature companies with growth potential that need regeneration. A wide range of industry sectors benefit from private equity funding such as technology, industrial, healthcare, banking and finance and more.
People are often confused about the difference between private equity and venture capital. Venture capital is actually a form of private equity but the main difference is that it tends to fund younger companies such as start-ups and emerging companies.
Now that you know a little bit more about private equity, don’t stop there – there’s plenty of resources out there that will teach you all you need to know about private equity funding. This is only the beginning.
Once you’ve read up a bit more about private equity and how it works, let’s take you through what you would need to do to acquire this type of funding for your company. The first thing you’ll need to do to start your private equity journey is to interview potential investors.
We understand how complex it is to search for the right private equity investor, so we’ve listed some key questions you should ask when trying to find the right investor to partner with for the long-term:
How much control will management and shareholders have?
Will there be follow-on investments? If so, what are the terms?
How experienced are the private equity firm in your sector?
Who are the main points of contact?
What will happen if either party wants to exit the deal?
What costs will the business be responsible for?
What is the investment horizon?
What does capital structure look like?
If you’d like more information for any of the questions above, you can read our full article on 10 Questions to ask a private equity investor.
As well as having these questions, we recommend that there is always a good lawyer present to negotiate on your behalf. You will want to find a law firm with experience not only in private equity investment, but they must also have the commercial experience to be able to put themselves in the position of the management or founder. Choose your lawyers with care and look out for independent references.