Private equity firms pool money from investors and search for businesses to inject capital into which they consider investment opportunities. Receiving funding from a private equity firm can give a business the resources it needs to grow. Since competition for private equity funds is fierce, it is essential for companies to know how some best practices when trying to get private equity funding. Here are a few tips.
Sound Business Plan
A sound business plan is essential for a business to have a chance at receiving private equity. Private equity firms want to see that a business has a demonstratable use for the funds it will provide. The plan should include a market analysis, strengths and weaknesses of the business and its competitors, realistic financial projections, and any forseeable risks so the investors can evaluate the entire picture.
Know the Criteria
Each private equity fund has different criteria for the type of investments they will make. Most private equity funds specialize in a certain sector of the economy, so a company must indentify which sector their business fits into and then identify the private equity funds that invest in that sector. Also, private equity funds usually put a large emphasis on the experience of the management team, so a business would benefit from having experience on the management team. Convincing successful businesmen or academics to join the board of directors or sign on as a consultant can increase a company’s chance of acquiring private equity funds. Lastly, almost all private equity funds are looking for companies that will show above average short-term growth.
If a business is not established enough, or not ready for the kind of growth that a private equity firm likes to see, alternatives should be considered. Angel investors are wealthy individual investors who independently invest in attractive business opportunities. Many local chambers of commerce keep a list of angel investors in that particular area, and angel investors can also be sought out online. If it hasn’t already been done, family and friends are also good people to ask for small scale funding.