Private Equity – The Unique Growth Strategy

Most businesses start small. It is the hope of the owners of these businesses that they will eventually grow to be big. In the world of business, it makes sense to start small. This is important at this stage because of limited resources which necessitates the minimization of operational and other expenses. The bigger the business, the harder it will be to keep tabs on expenses. Small businesses cannot afford to make major commitments which would entail large expenditure. There are many problems which are encountered by small businesses but which larger ones are immune from. Limited access to capital and better markets is one of the shortcomings of small businesses.

Private equity is the form of business financing whereby an investor puts in his money and becomes part owner and part lender. Many business owners going for private equity often have to forfeit their majority shareholding because the financier brings in large amounts of money as compared to that initially put in by the business founders. Private equity differs from borrowing from banks and other financial institutions. Those who give private equity end up as part owners of the business. However, part of the money may still be part of a repayable loan.

Many small businesses that previously acquired private equity are the big companies that can be seen today. They made use of the rare source of finance that private equity offers.

 

Most start-up companies do not make it beyond the first few months of operations. The passion possessed by the owners of these companies does not seem to enhance their success in any big way. What they need is bigger capital, more reliable markets, and better networks and expertise. These are some of the opportunities which are exploited by getting private equity. It is also useful in preparing a business for sale at a good profit.

Despite its unique advantages, private equity has some shortcomings. Business owners who attach importance to sentimental value are not favored by the model. Providers of private equity are only interested in the performance figures and not much else. It is also uncomfortable for many business founders who have to work as employees in the companies they started and answer to somebody else. Investors put in private equity so as to raise the value of the business and sell it. This is not good for those who want to keep the business for posterity.

If a business owner is considering private equity to boost his business, there are several factors to consider before taking the step. The first thing is assessing and deciding if this is the only way available to raise the capital required. Secondly, it is important to come to terms with the prospect of giving up control of the business. An owner who is not ready for the changes that a potential investor would demand for should not go for private equity. Finally, if the business is something one wants to retain in the family for long he should avoid private equity.

Getting smart investment strategy with China Sonangol

 

venture capital vs private equity infographic

Leave a reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

13 + ten =