If there’s one common thing among all businesses that have scaled-up fast, it’s easy access to capital.
Raising private equity is the quickest way for businesses to get access to capital and grow quickly.
Innovative businesses that have the potential to disrupt the market, corroborated by strong figures suggesting high profits in the next five years. You can easily private equity firms to invest in your business.
Raising private equity is better than going to the stock market. Why? This will avoid combating increasing regulation, a large board of directors, and an even larger group of public shareholders.
Top private equity firms are always looking to make their next big bet. Investors offer their industry expertise for a shred of profits. Globally, private equity firms together have nearly $1 trillion of unspent capital. This is increasing the valuation of companies.
It is anticipated in the next 1-2 years, funding activity will rise. Private equity firms will need to use the money to invest. If they don’t, they will be liable to return the money to investors. However, don’t get high hopes. There are a few critical things to consider before you decide to give up equity of your company.
Here are a few things you need to know to scale-up your business and take on the opportunities that are available for your company.
Evolution of private equity
A typical private equity model involves a private equity firm that raises capital from institutional investors like pension funds and sovereign wealth funds. Further, this money is invested in privately-owned companies by PE firms on behalf of investors.
In a typical setting, the management of the company retains the highest stakes, followed by the PE firms.
The founder and rest of the management team continue to run business with guidance and support from the PE firm. Nearly after 5-6 years of running the business, the firms would expect an exit, which is generally, selling their stake to another buyer or taking the business public. This collaboration between PE firms and management leaders acts as an effective catalyst for business and growth.
For institutional investors, therefore, private equity can offer exposure to fast-growing, high-potential, mid-sized private companies at a comparatively earlier stage of their growth trajectory than is available through the capital markets.
How does private equity work? Selling private equity stake to private equity investors helps founders and entrepreneurs broaden their ownership amongst wide management team. Additionally, it provides the business with long term access to capital to fund growth plans.
Moreover, founders and management teams get access to the firms’ valuable experience of the market and support for expansion both by organic channels and acquisitions.
Further, private equity investment allows founders to realize the value from the company, while they either continue to run business or hand over to next generation of managers. At the same time, retain a major share in a funded business that is supported to grow in value down the line.
For a long time, this is the established dynamics of the private equity industry. However, a few trends have developed in the last few years.