How to Choose a Private Equity Firm

When entrepreneurs want to expand and strengthen their business, they opt to partner with private equity firms. Considering that as of 2019, private equity firms held assets worth $3.9 trillion, it would explain why business owners would want to partner with them. However, you may be worried about how to find a firm that suits your company. Here are some tips to help you choose one.

Industry Strength

The first step is to find a private equity firm that invests in your industry. This is important as they understand what your company is all about. Find one that has previously invested in similar companies to yours. That way, you are sure they can help grow your company, maximize investment returns, and create opportunities for employees. Typically, the firm should have industry experts that will drive your business’s profitability

Business Cycle

The business cycle that your company is in will determine the firm suitable for you. There are private equity firms that specialize in a business in its early stages and development, and there are others that only partner with mature companies. Understand which stage your business is currently at and communicate your growth process to the private equity firms to get the best results.

Hands-On Vs. Passive Firms

Do you want to work with a passive or hands-on equity firm? If you go with a hands-on firm, expect them to play an active role in making decisions, making changes in your staff, and demanding reports from you. When you work with a passive firm, expect them to not interfere with your staff and be more of listeners than decision-makers. Choose how involved you want the equity firm to be.

Alignment Between Founder and Partner

There is no clear-cut ‘good’ or ‘bad’ partner. Most partnership conflicts are a result of disagreements in your goals and management style. If they are not aligned, then the partnership will not last long. For a successful partnership, find a private equity firm whose management style is most similar to yours, and you share the same goals for the company.

Name-Brand Vs. Under-The-Radar Firms

You can either opt for name-brand or under-the-radar private equity firms. Name-brand private equity firms are the big names in investment with large funds, wide portfolios, and a huge resource pool. Under-the-radar firms are a bit smaller and target specific investments. You should research both and find which firm aligns with your company’s goal.

If you know what to look for in private equity firms, the process of finding a suitable one becomes easier. Ensure that you do your research thoroughly and always read the fine print to avoid surprises.