A lot of people only have a vague idea of what private equity investing really is and it’s a shame since it could be a great opportunity for them to raise money for their company or find someone to acquire it. Private equity investment can also be a good option for investors who are reluctant to invest in public markets for different reasons. Let’s take a closer look at what private equity investment is exactly, the pros and cons of it, and how to acquire private equity investment for your company.
What is Private Equity Investing Exactly?
In broad terms, private equity investing is a form of financing where a third party acquires a stake in a company in exchange for funds. One thing that separates private equity investing from things like stock investing is that companies don’t have to report their earnings every quarter and private equity investors typically don’t have as much access to the company’s books as they do when they invest in a public company.
Private equity investment is considered an alternative asset class and has been typically used by companies who are trying to raise funds but aren’t big enough or don’t want to be traded publicly.
What are the Pros and Cons of Private Equity Investing?
One of the best things about private equity investing is that you won’t be getting a loan, but acquiring a partner. Unlike a bank loan, you are under no obligation to repay the investor unless it’s part of your agreement. You also won’t need to show credit history, but rather proof of earnings and that you can earn money for the investor in the future. Working with the right partner could also give you access to their expertise.
Companies like Parabellum investments, for instance, have extensive investments and expertise in things like IT services, energy, and mining. So, if you’re in any of these sectors, working with them would allow you to basically get access to a consultant for free, as they will have a personal interest in the success of the company.
However, you’ll have to dilute your share of the company’s earnings and you may have to give up decisional power in some cases to get financing. The investor may also put more pressure on you to perform. So, these are all things you must be aware of.
How Can I Get Private Equity Funding?
The first step in getting private equity funding is making sure that your books are in order, so if your reports are not neat and clean, you may have to find a professional to fix that for you. You also have to show growth potential and show that you have a good market position.
You need to show steady sales, have sound management, and be in a sector that is promising or at least not in decline. And your demands have to be realistic. All of these things will increase your chance of finding good investors and getting the amount you wanted.
Private equity funding can be beneficial both for investors and the companies they invest in. If you’ve never considered the option as a company until now, it would be a good idea to start researching this form of investment in more detail and see if it could work for you.