When you’re running a business there will be a time when you wish to realise the value of your business or require additional capital. We’re not talking about during an economic slump when times are hard and you need a little extra cash flow. That’s the unfortunate situation currently facing many businesses thanks to the global pandemic. This is more about business growth and making the most of your particular market opportunity.
Private equity investors can help you by both contributing capital and operating expertise to your business. The funds are supplied by private investors and they’ll want a stake in your business.
These funds are usually supplied to allow the company to invest in additional staff, product development, sales and marketing, acquire competitors or other initiatives that expand the company. These are the sort of activities that will generate additional revenue and cashflow, but often require both capital and strategic focus to commence and execute.
Where the funds are sourced
Different types of investors are active in private markets.
For example, private equity firms are investors with large amounts of capital available. In most cases, the capital belongs to a third party, such as wealthy individuals or even pension funds.
They’ll assess the opportunity based on your business, your current plan, and your and their assessment of the market opportunity. If the opportunity fits their investment criteria and if you wish to partner with them, they will invest to acquire a portion of the equity in your business. They thereby become your business partner – so it is important to consider carefully the investor you’re dealing with.
Different private market investors
Private equity funds are generally interested in making a return on capital. They will often purchase a majority share of your business and seek to influence decision-making.
Unfortunately, most private equity funds look to make their return within three to five years. They will make their return by selling their stake in your business. If you can’t afford to buy it out you won’t know who will take their stake or what they’ll do with it. This can be disruptive to you, the business or your staff.
Fortunately, there are some more flexible, much longer term private market investors, such as Teoh Capital, that may be able to support you. They are more flexible because their funding source is different – it may be from a single successful family who are typically themselves business founders, so understand your position. Partnering with these investors provides stability and continuity of ownership – you know who your business partner is not only at the start but throughout. Yes, they want to make a return on their capital – but you’ll also benefit from the increased value of your equity in the business.
These investors typically have deeper operational insights into business, from their own experience founding and scaling businesses, and are willing to dedicate time to helping you focus on strategic priorities in your business. But you’ll still be able to run the company on a day-to-day basis.
Don’t forget, a top tier private market investor gives you a new set of eyes. They’ll be able to spot solutions and opportunities that you may miss because you’re too invested in the business and the day-to-day processes. That, and the additional funds, can make a partnership with a good private investor a real bonus. It can help you and your company achieve your dreams!
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