Beginner's Guide to Private Equity India

Private equity is a universal word used in describing all sort of kinds collected from different investors for amassing millions or even billions of dollars in order to buy stakes within a company. Technically, private equity (PE) is venture capital. It is normally linked with funds trolling for mature, revenue-generating companies that requires revitalization. While venture capital goes for younger companies that involves in cutting-edge technologies, funds described as PE are more connected to businesses that have been established.

How it works: a private equity firm may buy out a company out-rightly. The founder has the choice to stay on with the business or not. There are other strategies of PE, which include providing expansion capital, buying out the owner, providing recapitalization for a struggling business, or cashing out existing investors. Beside this, private equity is also associated with leveraged buyout, which involves the firm borrows more money in order to enhance its purchasing ability.

Upside: Is the owner becoming too crabby? Are the real stakeholders requesting for a payday? Is the business trailing its mojo and in need of a severe cash overhauling or infusion? Private equity is the way out for such situation. The PE fund comes with the opportunity of having new ideas and with new managers with the skill of turning the business for good. In spite of this, PE has its downside.

Downside: In the early stages, newer companies isn’t well fitted into the investment strategy of the private equity. Don’t forget that the primary goal of a private equity fund is to ensure the company increases in its value and with tendency of investors returning. Sentimentality, the labor force, the role of the founders in the business, even the business' long-term success -- they can all be secondary to this goal. Therefore, in this stage, you should be ready for any kind of ruthlessness.

A twist: A type of private equity fund called a search fund has been gaining popularity recently. Instead of pooling money to invest in a business, the investors throw a few hundred thousand dollars behind a would-be entrepreneur who searches for the best business to acquire and run. If the future chief executive finds an appropriate target, the financiers then pitch in the millions needed to make the purchase. This could be an impeccable solution for a business that requires investment and a new top executive to turn things around.

 

Author’s Bio

Mark Long in this post, look at what private equity is all about, the upside and downside of seeking such funds. He further highlighted how most project finance companies in India are supporting investors.