Is Private Equity Investment the Right Option for Your Business?
As a business, if you want to attract a sound capital investment, it is vital that you ensure your business is investment-ready. You will also need to have a strong grasp of how investors typically operate because this will help you to find the right financial backer for your business. It’s important that you understand the two main types of capital investment available for businesses:
- Debt Finance: This investment option is available from financers who offer capital in return for repayment at a later date. This finance will have to be repaid with interest. Debt finance is typically available from banks.
- Private Equity Finance: Here, investors provide funding in return for a stake in your business. These shares are not listed on the stock exchange.
Main Differences Between Bank Loans and Private Equity Finance
One of the most significant different between these two investment options is that banks have a legal right to charge interest in a loan. Banks can also demand repayment of the loan by a specific date. This repayment date is firm and the total sum of the loan you have taken out, along with any interest accrued must be repaid.
In most instances, banks will require you to secure your loan against either your business or personal assets. This can be extremely risky if your business fails.
Private equity investors do not have the same legal rights to both interest and capital repayment that banks do. This means that the only way they can claim their money back is through capital gain. Any investor will want to take out more capital than they invested when they exit your business.
This is why they look for high-growth potential investment opportunities. It also means that a private equity investor is likely to be far more hands-on than a bank as they have an active interest in seeing the business succeed. An investor can also bring useful expertise to the table, which your business will likely benefit from.
Risks of Private Equity Investment
Private investment opportunities are gaining in popularity as they offer investors the ability to diversify their investment portfolio whilst still maintaining a high yield.
The private equity investment business has gained a bad rep over time, with a strong perception of asset stripping culture still pervading. In some cases, private equity investment deals can also offer a higher amount of leverage than other investment options.
Find an Expert in the Field
Firms like Goodwin offer a huge breadth of practice that will certainly help both private fund managers and investors when it comes to analysing new investment opportunities. These types of firms are experts in their field and have experience operating across industries and global markets.
If you’re looking to get started with private equity investment this type of firm can take you through each stage in the life cycle. At each stage you will be able to draw on the experience and collective knowledge of the firm’s banking, securities, tax and other financial practices.