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Private Equity Investments

by Ryan on January 12, 2012

Private equity investments are important sources of funding of any project. These types of investments can be used for a broad range of things, such as purchasing a public company to take control of it and changing it in a manner that would be acceptable or preferable to the investor.

What exactly are Private Equity Investments?

Private equity investments are among the essential funding sources in the entrepreneurial marketplace. They contribute to the funding of approximately 25 times the number of businesses that venture capitalists fund every year.
Private equity investments are typically derived from wealthy individuals or investment groups that have surplus funds that can be used for investing in other businesses. They represent an important source of funding for early stage and high-risk ventures. Sometimes, a private equity fund is formed by working with several or multiple investors.
Studies reveal that around one-seventh of the more than three hundred thousand startups or early growth companies in the United States receive funding from these types of investors. This translates into more than $20 billion of investment in an estimated 50,000 deals every year. Wealthy individuals or investment groups are found to exceed venture capital sources that have been estimated to be around $5 to $7 billion spread over one thousand capital investments each year.
While not exactly the general rule, the goal of private equity investments most of the times is to get the public company off the stock exchange, then implement new management strategies and techniques in the company. After a period of time, when the investors believe that it is time for the company to do so, they can have an initial public offering and take the company public once again. Many times, investors can bring in more funds using private equity investments compared to what was originally invested.
Wealthy individuals who make private equity investments typically hope that the companies they are investing their money in will turn around and become profitable again once specific changes are made. For instance, an established public company that has been under a lot of financial strain at present can be helped by private equity investments re-emerge and become very profitable again in the future.

What are the benefits offered by Private Equity Investments?

Helps in the growth of your business.
Allows your business to develop new products and services.
Can provide your business with the funds it needs when facilitating acquisitions or mergers.
Allows your business to grow exponentially compared to what it used to be before it availed of private equity investments.
The time needed to meet with and receive funds from private equity investors are much lesser compared to a typical venture capital firm.

How do you attract Private Equity Investments?

Many business owners today have come to realize the major advantages of attracting private equity investments to their company. If you are a business owner and you also want to attract private equity investments to your firm, you might be asking how to do it. Well, looking for private equity investments can be a very lengthy process and always depends on a variety of factors. You can start off with having a good business plan ready and in place before approaching a private equity investor.
In your business plan, try to include details on how they will be compensated. Having a good business plan is very important to secure the approval of private equity investors. Bear in mind that most of these investors reap huge rewards when their portfolio firms are big and successful enough to go public. Using your business plan, demonstrate to them the ability of your company to do the same thing for them in the future.

Important Factors to Consider When Looking For Private Equity Investments

Also, make sure that you only choose those private equity investors who have the same investment preferences that your company has. This can include the amount of equity you are looking for and the amount these investors are willing to invest, your company location, the investment stage, as well as the industry sector that your company is involved in.

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