FUNDING SOURCES #23 – PRIVATE EQUITY FIRMS
Karl Dakin
Capital Coach | Stakeholder Investor Campaigns | Design, Stage, and Manage or Support | Reduce Time, Money, and Risk of Raising Funding | Increase Probability of Success! | Opportunity Management
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?FUNDING HAPPENINGS
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?FUNDING POINT – FUNDING SOURCES #23 – PRIVATE EQUITY FIRMS
A private equity firm is a type of investment management company that provides capital to companies, typically in exchange for equity ownership.
?These firms raise funds from institutional investors and high-net-worth individuals to invest in privately held businesses with the aim of increasing their value over time. The primary goal of a private equity firm is to generate returns for its investors by actively managing and improving the operations, financial structure, and strategic position of the companies in which they invest. This makes private equity an attractive source of funding for businesses seeking capital to grow, restructure, or transition through significant changes.
?To identify a suitable private equity firm, a small business should:
1.???? Define Objectives: Clearly outline the business goals and the specific needs, such as funding amount, strategic support, or industry expertise.
2.???? Research: Use databases like PitchBook or Crunchbase, and search industry reports to find firms that focus on your industry and growth stage.
3.???? Network: Leverage industry events, business advisors, or professional networks to gain introductions to potential investors.
4.???? Evaluate Fit: Assess the firm's investment history, reputation, and the success of their portfolio companies to ensure alignment with your business objectives.
5.???? Prepare: Develop a strong business plan and financial forecasts to present to potential investors.
?Advantages
?Private equity funding offers several advantages:
1. Capital Injection: Private equity provides substantial capital, enabling businesses to pursue growth opportunities like expanding operations, investing in new technology, or entering new markets.
2. Strategic Expertise: Private equity firms often bring valuable industry knowledge and operational expertise, assisting in strategic decision-making and business improvements.
3. Network Access: These firms typically have extensive networks that can open doors to new customers, partners, and key industry contacts.
4. Operational Improvements: Private equity can help drive operational efficiencies and improvements, enhancing overall company performance.
5. Long-term Perspective: Unlike venture capital, private equity investments typically focus on more established companies with a longer-term growth perspective, aligning with strategic growth plans.
6. Value Creation Focus: Private equity's goal is to increase company value over time, benefiting both the business and its stakeholders.
7. Flexibility in Use of Funds: Funding from private equity can be used for various purposes, including buyouts, expansions, or even turnaround strategies for underperforming businesses.
?Overall, partnering with a private equity fund can be a transformative step for a business seeking to maximize its growth potential and operational efficiency.
?Obtaining funding from a private equity firm as a small business is generally less likely compared to larger, more established companies. Private equity firms typically look for businesses with high-growth potential, scalability, and a clear exit strategy. Private equity funds have the capability to review many investment opportunities and cherry-pick the best of these that match their areas of interest. If you cannot meet all of these requirements, then look elsewhere for funding.
?Disadvantages
?Taking funding from a private equity firm can have several disadvantages:
1. Loss of Control: Private equity firms often require significant ownership stakes, which can lead to a loss of decision-making control for existing management.
2. Pressure for High Returns: There is usually strong pressure to achieve high returns quickly, which might lead to strategies that align more with short-term goals rather than the long-term vision of the company.
3. Operational Interference: Private equity firms may be heavily involved in business operations, which can lead to conflicts with existing management styles and practices. 4. Increased Debt: Acquisitions by private equity firms often involve leveraging the company with additional debt, which can increase financial risk.
5. Exit Pressure: Private equity investors typically expect to exit their investment within a specified timeframe (often 3-7 years), which may force the company into premature phases of growth or selling.
6. Cultural Impact: The introduction of a private equity partner can change the company's culture, potentially causing friction among employees.
?Recommendations
?According to available information, only 3% of entrepreneurs who pitch to investors will receive funding. Because private equity firms represent only a fraction of these fundings and they have more resources to choose their investments, this means that the odds of obtaining funding from private equity firms are quite low, with the vast majority of entrepreneurs talking to the wrong people and ultimately wasting their time and resources on unsuccessful pitches.
领英推荐
?I enjoy working with private equity firms because they are mostly professionals who know what they want. Unfortunately, because of their knowledge and selectivity, it takes a highly superior investment opportunity to get funding from this source.
POLITICS AND PROFITS
I appeared as a guest on Rick Amato's Politics and Profits show, where I spoke about ‘disinvested communities’. I provided examples and explained how strategic investment into these communities may serve to empower the communities through greater wealth and skill building. I pointed out that turning these communities around would remove a great burden from the government and charities that could put money to use in other places. I invited people to support the efforts of @RCI Community Funds and the RCI Academy.
SUCCESSFUL FUNDING SHOW
THIS MORNING, October 29, on my Successful Funding show, I hosted Adam Kemper r with Real FIG Advertising. We discussed a comparison of communications that are actual and artificial intelligence-enabled. It was acknowledged that to build a needed level of trust, certain communications require the personal touch, while other communications, largely informational, can be delegated to an AI. In addition, AI may be a tool for supplementing selected communications by finding data and validating information.
You may see a recording of the show at:
RCI COMMUNITY FUNDS
As a member of this new company, I am working with a team of professionals to craft a new funding mechanism for revitalizing underserved communities.
The State of Maryland gave approval for the formation of RCI Community Funds, Benefit LLC LC – this for-profit business is working to raise and deploy funding strategically into a series of selected communities.
In parallel, the newly formed RCI Academy Corporation will offer educational programs on community revitalization.
RCI Community Funds presents the Community Revitalization show on Thursdays at 10 am Eastern Time on LinkedIn, YouTube, and Facebook.
THIS MORNING, Bill Huston and I hosted Christopher Miller with the National Coalition for Community Capital. This organization is the leading advocate for community capital and community investment funds to empower underserved and economically distressed communities. We discussed various issues regarding the need for and approaches to creating these funds.
You may see a recording of the show at:
DON COHEN SHOW
MONDAY, I was the guest on the Don Cohen show, October 28, 9 am MDT, 11 EDT, on LinkedIn Live. Don and I discussed financials and how they give a picture of a business from a dollar and cents perspective. We also discussed the distinction between a point and time and different perspectives looking backward and forwards with and with adjustment for income taxes.
You may see a recording of the show at:
LAST WEDNESDAY, I was a guest again on the Don Cohen show along with Charles Caldwell. We discussed planning as a key to success.
If you would like to view a recording of the show, go to:
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Karl Dakin, the Capital Coach
Dakin Capital LLC
CEO at DocuBridge | Automating Financial Modeling with AI
3 个月Potentially big gains, but also big tradeoffs! Important to think about aligning incentives with the PE firm
Owner of Nu Market Ltd.
4 个月karl do you have time to chat email back at [email protected] with a time if you are free .
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4 个月Thats going to be Amazing program thanks for sharing this best wishes to each and everyone their ?????????????????????????
Capital Coach | Stakeholder Investor Campaigns | Design, Stage, and Manage or Support | Reduce Time, Money, and Risk of Raising Funding | Increase Probability of Success! | Opportunity Management
4 个月Is your small business a good candidate for funding from a private equity firm?