5 Things Private Equity Firms Look for in Companies

Running most businesses requires finance. Even the smallest startups will eventually grow and need extra funding in order to keep growing and become the leader in their field.

But, to access the finance you’ll need you’re probably going to have to look at private equity firms. To ensure you can attract the finance you need you should be aware of these 5 things that private equity firms look for!

  1. Business Base

There’s a good reason why so many people start their business in the US; there are more private equity firms willing to invest in US companies than in any other market.  Adopting the right business entity and being based in the US is a great start when you’re looking for private equity investors.

2. The Management Team

Private equity investors do not run your business; they need you to do that. This means they will be very interested in the strengths and weaknesses of your current team and how well established the team is.

In general, the longer a management team has been in place the more positive it looks for the business and potential investors. You’ll need to convince a potential investor that you know your business and your market inside out; that will make you a safe bet for them.

3. Business Planning

If you’re looking for business finance then it should be because you’re planning to grow; this will give the investor the return they are hoping for. A company that is seeking private equity in order to stay afloat is not an attractive option.

However, just have the intent to grow is not enough. You need to have a solid business plan that demonstrates your market knowledge, where there is room to grow, and how you intend to achieve it.

4. A Growing Market Sector

In order for your business to grow there needs to be the potential in the market for growth. Ideally, the market will already be growing. This will help you satisfy the private equity firm that you’re an attractive option, as well as providing you with an avenue to expand into.

If the market sector is not currently growing then you’ll need to be able to demonstrate how it has the potential to grow and why it is likely to.

Again, it’s all about the confidence that your public equity firm will feel when they are looking at your company.

5. Security

A bank will normally have some sort of security against a bad investment, the private equity firms don’t have this luxury. They will be seeking some sort of security, which is often provided by seats on the board. This will help them to guide the company and ensure that it becomes a success, even if the market isn’t playing the way you expect it to.

It’s likely that the private equity firm will look at contingency plans before they invest to reduce their risk; you may need to provide some additional information to ensure they know everything they need to about your business and the future potential.

Author: Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to editor.webposts@gmail.com.