To deal with private equity investors, you’ll need to understand them. They may seem like a tough nut to crack, but once you know what they want and what drives them, you can adapt your strategy accordingly to get the most out of them. Firstly the question we must question we must ask ourselves is“what is private equity”?
Private equity involves investing in unlisted companies with the intention to sell them at a gain after having created added value. A private equity investor may buy a company at any stage and then build it for a few years before letting it go. In the 90s, many private equity funds were created to facilitate investments in private companies. They raised finance from investors to acquire promising companies with the aim to make them more profitable.
Unfortunately, there are many misconceptions about private equity firms. However, this article will help you tell the difference between fact and fiction. So, what do you need to understand about private equity?
1. Private Equity Firms Work Hard to see a Business Grow
Money is not the only value private equity firms bring to the table. They also provide access to a high level of information and expertise in different fields. Contrary to the opinion that they strip companies of their best assets, they invest in various strategies such as acquisition and integration of smaller competitors, repositioning of outdated concepts and expanding a company’s geographical footprint, and so on. No one would give you their money and want to watch you fail. They want the returns as much as you do, so they put in the work.
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2. Private Equity Investors Want Returns
If you believe that investors are hard to please, you wouldn’t be wrong because that’s the truth. In the early nineties, the returns were high, so more people were willing to invest.
Now, the returns are not what they once were, so investors have become more selective. You need to remember that they’re wanting to build wealth through your business, so your success will also be their success.
3. They Think of the End Game Right from the Start
Private equity firms are ultimately looking to sell a business after having grown it and made it more profitable. If an investor is going to invest in a business, then they must be able to see the possibility of a profitable exit.
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This is when relationships between investors and business can become strained, as the goals of both parties might no longer converge; investors are looking to gain a return on their investment but the business owner is navigating the ups and downs that come with building their brand.
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4. Private Equity Firms are Always Looking for Value
Unlike venture capitalists, private equity firms go out to look for potential investment opportunities and may approach you if you seem like a good fit for them. That doesn’t mean that you cannot approach a private equity firm yourself, but your company has to be the right fit for their profile. While they won’t engage in the day-to-day running of the firm, they may appoint certain individuals to the management board.
Like you, investors are looking to maximise returns, so a lot of what they do will come back to that.