Negotiating Private Equity Financing

Private equity financing is aptly named because it is money that is invested in a company that is not publicly owned. The investor gets partial business ownership in exchange. The invested money can come from various sources including private equity groups, institutional investors and wealthy individuals. All this means is that there are many opportunities to find funding for expanding your business.

The investor is willing to invest in your business because there is an expectation of getting a higher return than could be earned in other financial markets. Though it’s a unique funding form, it’s like angel investors or venture capital in that private investors can invest in any stage of business. It can be startup funding or expansion funding, but typically private capital is given to businesses that  HULT PRIVATE CAPITAL have been operating for a period of time. The amount of funding can run into the millions but there are no limits on amounts.

Assuring Investors

Like any funding, there are certain criteria that must be met before an investor will fund your project. Similar to equity partners, the private equity financiers will expect a certain level of assurance that the investment has an excellent opportunity of bringing in expected returns. Naturally it is hoped the total returns as an owner will be higher than what would be earned if giving business loans. The investors also want assurances that the money will be used as indicated in the agreement.

It is a matter of balancing risk of loss against the chances of realizing estimated gains. The investor must decide what risk is acceptable.

Following is a short list of the kind of information an investor will look for when analyzing the risk that comes with private equity financing.

· Who assumes the most risk – the entrepreneur or business owners or the equity partners or private equity investors?
· What business stage is the enterprise in and does it need seed or startup funding or expansion funding?
· Is management experienced and have a track record of success in the industry and business?
· How much capital does the business need and is the amount reasonable compared to the size of the business and the planned expansion?
· Is the business plan fully developed?
· Is there an effective marketing plan with strategies and tactics?
· What is the business financial history and has there been industry success?
· Are investor funding restrictions acceptable to the business?

The question concerning funding restrictions may sound unusual, but there’s a good reason why it’s on the list. Private equity investors are lending private money which means they can set any limitations or requirements they want for business funding. The business accepting the funding must accept them in order to obtain financing.


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