Private equity firm/ group is an investment manager that makes investments in private equity of operating businesses through different investment strategies including venture capital, growth capital, mezzanine capital and leveraged buyouts.
Private Equity Financing
Private equity financing allows businesses to utilize alternative resources when bank funding is unavailable. A private equity group makes the money here available where the investor also has the option of taking up a position within the company as well. Furthermore, private equity financing also involves investing in companies with an interest-back guarantee.
Sometimes, investors can even be in charge and tell a business owner how they want their money to be spent. The finances from private equities are usually used as start-up capital for businesses, project funding and expansive development. Nowadays, the private equity financing market is a great choice for businesses because it offers no restrictions on the amount of money that can be invested or make demands for monthly payments.
Even when a business does not necessarily need to be sold, one can still use this unique financing strategy to boost competitiveness and attract even more customers. Private equity groups are quite accessible unlike traditional options like bank loans. A bank would go through your business with a fine toothcomb, scrutinize your operational costs, expenses and even when the business came into existence. A private equity group is more concerned about growth potentials and if they are competent people on your management team.
TYPES OF PRIVATE EQUITY INVESTMENTS
There are five major types of private equity financing. There is venture capital, growth capital, mezzanine capital, leveraged buyout, and distressed buyout. These equity variants are well suited for different businesses with particular preferences.
- Venture Capital
Investors provide a venture capital as start-up funding/ early stage of development for companies that lack the wherewithal to enter the capital markets, where there is convincing market potential but not proven yet. The typical investment size varies from $50,000 to $5 million.
- Growth Capital
Growth capital is for seasoned companies looking for capital to restructure or expand into new markets. Here private equity firm creates a majority or minority ownership stake in companies that are more developed than classic venture capital investment companies. The typical investment size varies from $5 million to $50 million.
- Mezzanine Financing
Mezzanine capital centres mainly on equity financing and servicing debt. It may be in the form of subordinated debt – junior to senior debt- or preferred equity, where return expectations are typically around 15%-20% per year.
- Leveraged Buyout
A leveraged buyout involves buying another company. This acquisition may be a public or privately held company and use debt instruments for the majority of the purchase price, typically 60-75% of the total price.
- Distressed Buyout
In a distressed buyout, a private equity firm acquires a financially distressed business well below market value.
If you want to successfully sell your business via private equity financing, your business must meet all the requirements of the PEG. They assess the risks involved and see how feasible it is to earn profitable returns. Most investors will only show interest in your company only if the profits are better than what is obtainable in the traditional stock markets. Do not embarrass yourself by asking for PEG financing without a comprehensive business plan, a marketing dossier, competent management team and ironclad financial history.
This type of private financing can prove to be a daunting task. You might need professional help, if you are to succeed. A well-rounded professional saves your company the stress and rigours of getting a group willing to put money down for your company. They also help cut down the elongated request process and give you options. This is good for you, as it enables you go with the highest bidder.