What is private equity financing?
- KVK Editors
- Background
- 15 December 2022
- Edited 10 September 2024
- 1 min
- Managing and growing
- Finance
Private equity firms are a regular feature in newspaper headlines. But what is private equity, exactly? ‘Private equity’ means acquiring funds in exchange for some amount of equity in your company.
How does private equity work?
Private equity financiers buy shares in a company. This puts money into the company. The shares may become worth more or less. That risk is for the financier because they are shareholders. Examples of private equity financing are business angels, venture capital, a seed business angel fund, private equity firms and regional development companies.
Involvement
With private equity, your company does not just get money. Private equity funds and investment funds use their network, knowledge and entrepreneurial experience to grow your business. In exchange for the shares, the investor gets a say in your company.
Reward for investors
A private equity investor or private equity fund wants to grow your company so that it becomes more valuable. After a few years, the investor sells the shares for a higher amount. This is the earnings model of private equity.
When does private equity provide opportunities?
Private equity is an option in the following cases:
- The start of innovative businesses with a relatively high risk (start-ups)
- Growth of non-listed businesses, for example through a takeover/acquisition or internationalisation
- Management Buy Out (MBO): the current management buys the business, or a portion of the company becomes independent
- Management Buy In (MBI): new management from outside the business buys the business
- Bridge financing
- Business sale
Are you looking for a suitable type of financing? Use the financing flowchart.
