The value of the equity invested in business not publicly traded is known as the private equity market.
Why not just get a bank loan?
Since the early 1970’s the private equity market has been growing steadily. The private equity market continues performing strongly and is still in growth today despite the still unfavorable financial climate. A greater proportion of equity is generated across the private equity market as venture capitalists invest less and less regularly and with smaller financial commitments. Banks are becoming highly reluctant to lend with the economy remaining so volatile. Businesses are looking more than ever to the private equity market to raise capital.
What do private investors want?
The bottom line is that at the end of an agreed investment period, private equity investors are looking for an equitable return on their initial cash injection. Private equity funds will assess various credentials of your business in order to decide whether an investment is likely to deliver favorable long term returns.
Longer term investments are the standard in the private equity market. Three to seven years would be a timeframe typical of when private equity investors would be expecting to begin to see returns coming from the business.
Consistent and strong revenue generation is a key factor which underpins the value and sustainability of all businesses. Private equity investors will always be seeking opportunities to add value to your business and boost revenue streams. Your chances of acquiring investment for your business are likely to be greater if you’ve explored some of these possibilities yourself and can propose ideas to an investor panel. Sustaining growth of the business will be a factor carefully considered by private equity investors, should there be potential for growth for two to three years but then a plateau over the following four years, it is unlikely to stir the interest of private equity funds. Management teams within a business come under close scrutiny from private equity investors. Investors will be keen to know everything about the person or people who they’re entrusting to deliver a substantial return and ambitious business objectives.
Investors love investing, but they love getting out with an equitable return too. A precise exit plan is vital both for the investors and for the business. If the investors leave and the business isn’t sustainable then financial trouble way well be looming.
Look it up
To learn more about the private equity market and assess whether your business could benefit from investment there are a number of tools available online. There are numerous options available which can help you define your business’ needs before diving into the private equity market. There is also great advice available for those looking to invest themselves.