[This article was written by Tarah Mills.]
As your business experiences growth and expansion, you might require investors that are more involved in the company as well as larger amounts of cash investments. When your company hits this stage of growth, it’s common to start thinking about finding strategic investors and private equity investments.
Investments from private equity investors are normally reserved for businesses that are at or near a very large boom in growth. These investors become partners in your business. They provide high levels of management help and guidance along with an influx of cash.
In this article, we’ll take a look at the best strategies for your business as you enter into this new phase of growth and development.
The Basics of Private Equity
Private equity is business capital that your company sources from individuals with high net worths, or from private equity firms that manage and raise shareholder funds. A private equity investor buys shares within private businesses (or sometimes public businesses if their intent is to delist the business from the stock exchanges).
A typical private equity investment will be anywhere from $20 million to upwards of a few hundred million dollars, depending on the size and scope of the business the investor is interested in funding.
What Is a Strategic Investor?
A typical investor is normally a financial-only investor. They buy company shares and hope to generate a positive financial return while working to diversify their overall portfolio of investments.
Strategic investors are different. They get directly involved with the operations and management of your business while also providing much-needed capital investments.
It’s the goal of a strategic investor to complement the existing business partners and owners. As an example, let’s say you have a lot of personal experience in eCommerce marketing but have difficulty with the business’s financial aspects. In this case, your business would greatly benefit by bringing in a strategic investor that’s a high-level financial management expert. They’ll be able to properly guide your business decisions.
Based upon the needs your business has, a strategic investor can jump in at any stage of growth and help bring flow and direction into your business cycle.
When Is It Time to Look for Private Equity?
Before seeking private equity investors, you’ll want to make sure that your business has a proven track record and that our earnings are substantial. Many private equity investors look to purchases businesses outright. If you’re in an established position to present them a potential to multiply their investment with a buy-out, you’ll be able to approach private equity investors with confidence.
Keep in mind that private equity investors typically invest in businesses that are in the latter stages of a large growth cycle. They’ll be willing to risk their investment dollars only on businesses that are able to prove their value and will continue to grow.
How to Find Strategic and Private Equity Investors
Start your search for private equity money by hiring an investment bank that will specialize in exit opportunities for your business. Your attorney, accountant or lender may be valuable resources in getting you in touch with private equity firms that will fund your business.
As part of your private equity strategies, look for strategic investors that are operating in your industry, or an industry that’s closely related to yours. In the majority of cases, these specific investors will already dominate in sectors where you’ve already established a multitude of business relationships.
Your pitch to a private equity investor in simple, but requires a lot of detail. Basically, you need to convince them that your business has a high potential upside during the next two- to three-year cycle and that your business presents far less risk than an investment in a venture stage company.
Managing the Relationship After An Investment
After an investment is made, expect that they will get involved in business operations. They’ll likely want several seats on your board as a part of your agreement. If their investment in your company is very substantial, they’ll likely want control of the board.
If you’re concerned about losing ownership, you might want to reconsider private equity as an option.
Is It Time for Private Equity?
You’re the business expert on the path of your business. Private equity is a proven path that has helped thousands of businesses move forward. If the time is right for you and your business, start digging in.
Tarah Mills has always had a passion for writing. Her philosophy is that not only can writing be educational, but it can change the world. While she is dedicated to her work, she still enjoys a good game of basketball, curling up to a good book, and all things Star Wars. She currently resides in the Richmond, Virginia area with her family.