Private equity
Private equity represents just one of several routes businesses can take in their quest to obtain funding. It is an option that is open to businesses across all industry sectors and at any stage of development, from start-ups to established companies seeking re-investment. Ninety-five percent of private equity firms in Britain are registered with the BVCA - an organisation that promotes private equity in the UK.
How private equity works
Private equity empowers managers and business owners to realise the growth potential in themselves and their businesses. In exchange for an equity stake in the business, a private firm will release investment funds to the business to enable it to grow and to become profitable. This essentially means that a business relinquishes a percentage of ownership to the private firm in return for investment funds.
Different equity firms work in different ways. Some will require representation on the board of directors in a non-executive capacity. Others may require a more prominent and active role in the strategic management of the business, enabling them to guide it to the profitability level that they require. Whatever involvement a private fund has in a business in which it invests it will have one clear objective in mind - to grow its investment. Equity firms don't invest to lose money, they invest to make a profit. Private firms offering investment will therefore only select businesses where there is a high probability of them making a good return on their investment when they withdraw their equity stake.
Equity stake withdrawal is the point at which a private fund realises its profits. It is important to understand that equity firms are rarely in the business of long-term investment. They will want to see an exit strategy in place, enabling them to realise the return on their investment within a timescale of around 2 - 10 years. Should the business in which the private firm invests aim to float on the stock market, then it is likely that the private firm will require an exit strategy with an option to hold onto their shares for one or two years after floatation.
Private equity sources
Equity firms come in all shapes and sizes. There are bona fide private firms who concentrate on investing in particular industry sectors, there are private angel investors who concentrate on start-ups, and there are venture capital trusts who look for high investment return potential only. Some equity firms will also want to buy a controlling stake in the business in which they are investing, enabling them to sell the business on at profit.
If you're looking to fund a new business idea or need substantial re-investment in an existing business, equity firms should merit some serious consideration. They have a vast amount of experience in making profitable investments, and can help steer your business to the height of success.