Private equity refers to equity capital invested in unlisted companies is invested. Private equity firms, funds or other investors acquire shares in a company with the aim of increasing its value in the long term.
Unlike with a traditional loan, investors receive a direct stake in the company. In addition to capital, they often contribute strategic expertise, networks and management experience.
Typical forms of private equity are:
- Growth financing: Capital for expansion, internationalisation or new business areas
- Buy-out: a full or majority takeover of a company
- Management buy-out: Takeover by the existing management
- Management buy-in: Takeover by external managers
- Turnaround financing: Capital and support for businesses facing economic difficulties
Private equity investors generally aim to develop the company over a period of several years and then sell their stake at a profit. This sale is known as Exit referred to as.
Possible measures to increase value include:
- Optimising business processes
- tap into new markets
- Increasing turnover and profitability
- expand the management team
- acquire further companies
- Further developing products or business models
Private equity can offer the following benefits to companies:
- Access to larger sums of capital
- strategic and operational support
- additional industry knowledge
- Access to relevant networks
- faster implementation of growth plans
At the same time, potential disadvantages must also be taken into account:
- Transfer of shares in a company
- Investors’ rights to have a say
- significant pressure to deliver growth and returns
- possible changes to strategy or management
- Preparing for a future exit
Private equity is usually aimed at more established companies with a robust business model and clear growth potential. Young start-ups, on the other hand, are more often financed by venture capital, which is also a form of equity capital but places a greater emphasis on early-stage and high-risk phases of a company’s development.
innoWerft helps start-up founders and businesses to understand the different forms of financing, identify suitable investors and prepare strategically for meetings with investors.