Should you have a private equity firm invest in your business?
For businesses that want to grow and require funding, it is essential to look for a way to get out of the jam. Entrepreneurs have a hard time when it comes down to corporate growth due to cash constraints. Raising financing is more difficult than it needs to be. To be more precise, most financial institutions are not willing to issue loans. Even when they are able to prove they possess great potential business leaders fail to achieve what they wanted.
What is an entrepreneur like you supposed to do? Forming a strategic partnership is a viable solution. More and more private equity firms wish to lend a helping hand to businesses that are in need of financial backing. Those who are excluding private equity from their list of options are making a huge mistake. PE investors make great funding partner and they have a lot to offer. It is possible to raise significant amounts of money, not to mention that there is no reason to worry about maintaining control of the company. In what follows, we are going to understand what it means to collaborate with a private equity firm.
About private equity
Venture capital and private equity is not the same thing. Although they work in a similar way, they are not the same thing. A private equity firm invests considerable amounts of money in businesses and claims a specific percentage in the companies in which they invest. Venture capital firms, on the other hand, focus their attention on businesses with high growth potential, the vast majority of their funds ranging from a few thousand pounds to a few million. It is not uncommon for a firm to manifest spontaneous behaviour. PE firms raise funds by various means, such as obtaining capital commitments, and they provide strategic expertise for the company. Partnering with such an organisation is simple as ABC. In the opinion of XIO Group, it is a good idea for you to prove that you are able to create value for the investor coming knocking at your doors.
Why should businesses lean on private equity firms?
Taking into consideration that private equity firms are interested in helping out businesses that are in the impossibility of driving revenue and cash flow it would be a shame to not take advantage of this opportunity. There are certain advantages to private equity funding as opposed to other options.
- Impressive amounts of capital – PE can make available the most meaningful amounts of money. The fundraising environment is very favourable and private equity groups know exactly when to impose on the unusually friendly conditions. Many go so far as to say that the fundraising has been a little bit too good. What is sure is that organisations are able to offer more money than ever.
- Total attention towards the business – Frequently, entrepreneurs are not capable of governing themselves. This is evident in the way their businesses struggle. The private equity firm does not take control of the company. Nonetheless, it does its best in order to create value. The PE firm helps the company implement all kinds of strategies, such as auditing and compensation committees. Investors sign up for long periods of time and they treat others in the same way that they would like to be treated. Being able to leverage a firm of this kind’s knowledge is priceless.
- High returns and low risk – According to the latest research, most private equity deals result in increased annual profits for the beneficiary. In plain English, PE firms are more than able to create value. Private equity returns are the best and this is not an exaggeration. XIO Group private fund firm specialising in the Fintech sector says though that not all firms are created equal, which means that it is necessary to pay attention.
Types of businesses that are attractive for private equity investors
At first glance, it seems like private equity firms are not picky as far as choosing business partners is concerned. The fact of the matter is that not businesses are attractive to these investors. Examples of businesses that are likely to get PE investors on board include but are not limited to:
- Businesses of agricultural production
- Automotive businesses
- Consumer healthcare companies
- Financial institutions
The reason why organisations are drawn to businesses of this type is that they are cash-based. More specifically, they provide cash flow owing to the fact that they run mainly on cash transactions. These companies operate in difficult areas, yet they enjoy many benefits, as production and payment take place almost simultaneously. It is important to not forget about the digital revolution. Technology is seen and managed as part of business operations. It is within immediate reach to take advantage of technology for increased efficiency and marketing, which is not nothing. How private equity firms decide where to invest is a mystery. We know that facts are collected and financial statements are checked. However, we do not know for sure how exactly a PE firm analyses the competition’s strength. Anyway, reasonable steps are taken so as to avoid committing mistakes.
The bottom line: Private equity and entrepreneurship do mix
It is more than clear that the private equity industry provides important capital than benefits numerous businesses. There has been much debate with regard to the fact that PE and entrepreneurship do not mix. There is no mismatch between the principles of the private equity firm and that of the business, that is for sure. So, why all this debate? The lack of understanding is what drives confusion and, implicitly, negative attitudes. Partners get a great deal in exchange, so there is no need to combine private equity with angel investors or venture capital. They should focus their attention on curating PE investors that fit their terms.
Finding a reliable partner starts with identifying your needs and goals. Practically, you have to determine whether your business can serve as a unique asset in the investor’s portfolio. Equally important is to make a first good impression. This means talking about what has worked and what has not. People do appreciate when they meet with entrepreneurs that comprehend constructive criticism.