Private Equity Investors are first line of investors in any business. Their main function includes raising money, acquire companies, improve cost and operations and then sell the company at a profit.
How do they raise money?
The main source of raising funds for private equity investors is by getting a guarantee capital commitment from external financial institutions. Usually, large investors are usually allowed to commit fund in private equity firms. Limited number of investors contributing large amount of funds makes up an ideal private equity investment firm. Investors can participate in first close or final close round of investment.
For whom they raise money?
While choosing the company for whom investment is to be raised, a private equity investor does essential checks regarding-
– the field of companies’ work
– management team
– financial performance of companies in the past
– market valuation
– exit scenario
Other factors that influence the decision of buying a company are personal relations with the management of the company. To seal a deal several rounds of auction are held or it could be done with the help of engaging with investment professional who reach out to targeted company by networking with them or through investment bank who pitches their proposed investment to the company.
Role of Private Equity investment firms?
After sealing investment with the company, they are responsible for its prudent use. Although they don’t actively participate in day to day running of the business, they keep a control over the management through quarterly official reports about the growth and status of company. On basis of report they render advice, solutions and engage with officials about managing the affairs of the company. They render their valuable experience and skill whenever required.
Exiting the company?
Private equity investors generally tend to book their profit from a company and exit after 2-3 years. The time duration depends on how the business is managed and how long it takes for the profit to start coming.
Well there is a lot of strategy designed and policy maintaining involved in the construction of a private equity firm. We all know how private equity firms invest in start-ups and are in urge to expand their business. But the question that often comes to our mind is that how do these firms manage to pull fund and earn profit. The above-mentioned points are exactly what these firms abide by.
A private equity firms rakes profit and raise fund through capital contributed by Limited Partners. Also, playing with risk factor is another talent of such firms who invest in coming which has higher risk proportion but at the same time has higher return on investment.
Like any other investors, a Private Equity firms is always on the look-out for undervalued assets and companies, and given the economy there are many firms who happily agree to get aligned with a private investment firm.