Private equity refers to all equity in businesses that are not publicly traded The cumulative value of this equity is known as the private equity market.
Why private equity?
The private equity market has been growing since the 1970’s and continues to do so despite the difficult economic conditions globally Tens of millions of pounds in private equity is invested each year, and significantly more equity is generated from private investors than from venture capital businesses Private investors are becoming a more viable option to businesses of all types and sizes, capitalising on the wariness of the banks to lend money against the currently volatile economic backdrop.
What will private investors look for?
Private investors are looking for a return on their money As simple as that sounds, and as easy as it may be to assure investors you have a winning business which can potentially make millions, there is more to it than that.
Investors in the private equity market are generally looking to make longer term investments and will typically expect to see a return on their investment within three to seven years from the initial cash injection There are a number of factors potential investors will consider before taking a final decision of whether to invest in a business or not.
The key to any business is its ability to generate revenue consistently In addition to this crucial consideration, investors in the private equity market will also be looking at potential ways to create additional value for the business in order to generate growth Private investors sometimes invest in smaller businesses as part of a bigger picture, perhaps then raising cash through mergers to create add on opportunities elsewhere Private equity firms will also rigorously assess the suitability of the management team in place at a business before proceeding with any investment It is not unusual for businesses to undergo wholesale management changes either before, or immediately after, private equity investment is secured.
Finally, investors are looking for a smooth exit strategy Private equity investors must be clear before any investment a businesses proposal for the end of the investment period and how this will be cleanly managed to ensure there is no negative financial consequences.
Find out more
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