Partnering with Private Equity (or Strategic Investors) to Build Your Business.
As a business owner have you thought about selling your business — but realized that you would be "leaving money on the table"? You know there is plenty of growth opportunity — but you also know that you need broader expertise and more capital to get at it. Then perhaps your company is a candidate to partner with a Private Equity Group (PEG) or Strategic Investors.
If so, Navocate can help you prepare, structure, and position your company for a successful Private Equity investment. Navocate will also market your company to appropriate Private Equity Groups that match your company's specific profile.
A PEG is a private company that partners with an entrepreneur to help him or her grow the company over a specific period of time — usually five to seven years. This is often referred to as the 'holding period.'
The Private Equity Group:
- Injects working capital into the business.
- Provides a broader combination of experience, specific expertise, and financial management to the business than the entrepreneur has been able to previously apply.
- Works with the business owner/s to create a business development plan based on geographic expansion, new product development, restructuring the company's operations, creating a new management team, or similar business development strategies.
The Private Equity Group receives 'private equity' in your company (equity securities that are not publically traded) — usually controlling interest.
PEGs secure capital by creating investment funds. The PEG serves as the general partner of the investment fund, while the investors are only limited partners. PEG funds are 'timed,' such that when the fund has been closed the capital must be invested by a specific date. Thus, Private Equity Groups with active funds are aggressively search for investment targets.
The benefit of partnering with Private Equity for the business owner is that the company's revenue and profitability can be grown larger and faster than the owner/s could have accomplished on their own during the next five to seven years. Because current owners retain equity in the company, their shares have a significantly higher value with the exit sale after the holding period.
Private Equity Criteria
To qualify for a Private Equity investment your company needs to:
- Have a viable business model, customers, revenue, and profitability — with a
minimum EBITDA of $1M - $2M.
- That means: Neither start-ups nor early stage (pre-revenue) companies
qualify for Private Equity.
- Offer a strategic business opportunity. For example:
- Access to a fast growing niche market.
- Intellectual property in the form of patents, trademarks, and unique
- Access to large, growing, and difficult-to-ready customer segments.
- Or similar benefits.
We refer to Strategic Investors as 'Private Equity Lite.' Strategic
Investors function much the same way as does a Private Equity group — with
the exception that there is no public investment fund. Strategic Investors
invest for themselves. Other than that, Strategic Investors and PEGs have
very similar approaches to investing in and growing a company.
What Private Equity is NOT
Private Equity is not Angel Capital or Venture Capital.
- Angel investors invest in start-up companies, rarely asking for
- Venture Capital provides capital to early-stage, high-potential, and
often high-risk growth companies. Like PEGs, VCs also create investment
funds, and also take an equity position in the company, usually after
the Series 'A' funding round. Venture Capital is a subset of Private
Equity, but not all Private Equity is Venture Capital.
Is this complicated? Undoubtedly.
Is this clear? Probably not.
Please call us to determine if your company is a candidate for a Private
Equity investment: (888) 900-5866, Ext. 1.