If you’re looking to open or expand any kind of business, then finding the right funding is a good way to go about it. One option that many find attractive is to seek private equity.
Effectively, this means selling off a stake in your company to get access to the cash that the investors can provide. However, every decision has its pros and cons, and here, we’re going to take a closer look at some of those.
The Pros
First of all, the immediate benefit is that you get access to significant capital, often more than you’re able to get through business loans or grants, alone, which can help you support the growth and expansion of the business without needing to pay it back.
Choosing the right business partner to sell a stake in the company to can also give you access to expertise and mentorship, offering management support and strategic guidance, which can be very valuable to those who don’t have much experience in running a business.
There’s a lot more that can come with the right choice of investors, as well. It can allow you access to an enhanced network, allowing for new connections and relationships within your industry and business community.
The credibility of your investors can also translate to credibility and attention for your business and you, paving the way for further growth both in your business and your own career. Furthermore, the infusion of capital and strategic direction can accelerate business growth and market penetration.
The Cons
The single greatest threat that comes with private equity is the potential to lose control of your business. Even in situations where you maintain a majority stake in the business, you can find yourself fighting the influence or control over the decision-making in the business, and may even find yourself in a struggle for your influence, such as with Freshstream and their recent equity purchase in Big Motoring World. Even if the conflict does not escalate to that degree, it can represent a change in company culture, which can be difficult for existing teams to deal with.
Even if you do have a strategic and value alignment with your chosen partner, you will also have to consider their priorities in future decision-making. This can lead to high expectations, with pressure to meet new growth targets and reach certain financial metrics. Many investors also come with a focus on short-term gain.
You might have to start thinking about making an exit strategy for your business. This, for instance, could include selling the business off entirely or going for an IPO. As such, you need to make sure that you are in alignment with the eventual goals of your potential partners before you sign anything with them.
Is Private Equity Right For You?
Private equity deals can be a legitimate and useful tool to open up access to capital, expertise, connections, and more. However, you have to be aware of the trade-off that comes with it, and what potential risks you should be prepared to deal with.
