Understanding private equity funds and what they can do for your business could be invaluable if you are considering additional funding sources. Private equity investments play an enormous role in sustaining entrepreneurship, financing more than 50,000 deals worth several billion dollars each year. What is Private Equity? How do companies attract those funds? What are private equity investors bringing to the table and what are their expectations in return? The answer to these questions represents the first step towards understanding private equity funds. Visit Touchstone Fund.
Private equity funds come by definition from the … Well, those are private sources. Here we do not try to act smart! Private equity sources are usually high net worth individuals, those with a few million dollars in loose change and looking to invest it in companies with strong growth potential. Usually the money from a core group of investors called the general partners is consolidated and the investment is managed by a partnership firm. It also invites other entities such as pension funds and financial institutions to participate, most likely as passive financial investors. The fund is invested in several companies which are selected on the basis of stringent criteria as equity for a limited time frame. Private equity funds typically last about 10 years, by which time they would have been exiting most of their investments by various means.
The recognition of what makes them tick is an important part of understanding private equity funds. Private equity investors are looking for companies that can deliver significantly high returns; however, this usually means they need to take on higher risk. It is widely observed that not all investments come up with trumps, and therefore investors must be prepared to lose some of their shirts. However, their purpose is largely served as long as the fund makes a profit at large. Fund managers are compensated for by a management fee, which is a percentage of the kitty amount and a share of the profits. But in truth, what they really want is an opportunity to eventually sell their stake at a huge premium that could be three to five times their initial investment!
If you think private equity financiers are merely sources of venture capital, you ‘re off-basis. You can be sure they are taking an active interest in your business, especially since a few million dollars are involved. That is not always a bad thing though. Private equity partners typically bring a wealth of experience, and could add value in building long-term strategy, forging alliances, or bringing in new customers.