The Advantages of Using Private Equity Firms

Investment always comes with some risk of failure. The risk is balanced by the prospect to succeed and become a major business with a sizable share of the general or niche market. Private investors are known to take on additional risk for more stake in new ventures. Some business ventures are unsuitable for crowd-funding or debt investment. There are numerous upsides to private equity firm investments in your business as shown below.

A Lower Volatility Rate

Private equity investment is advantageous to the business owner as the volatility is lower than in other funding options. It means that the investors cannot withdraw their money any time that they want. They have to wait for the business to undertake the initial public offering (IPO) in order to exit. As an example, the Facebook and Google investors had to wait eight and six years respectively for the IPO. This was the first opportunity that the early investors had to sell the shares they bought.

Another important thing to note is that public equity markets typically exhibit more volatility, unlike the private ones. This is in spite of the fact that private equity valuations are still undertaken in the same markets as the public ones. Private investors will easily choose these kinds of investment since they understand that their investments will remain relatively stable allowing them to consider diversification elsewhere.

A Better Funding Scale

If you have a start up business with the valuation of a few million dollars, you might find yourself ineligible for the financing by most bankers and public venture firms. However, a private equity firm can provide unbelievable amounts of funds for your business if you have done your homework properly.

Most significant deals in the private equity investment arena are quantified in millions of dollars. Moreover, private equity investors are extremely flexible in the way they invest. As an example, in 2013, a private equity firm called Blackstone invested $450 million in the Delaware City Refinery to prevent it from closing down. It is not possible to obtain such amounts from any other type of investor.

Private Investors are actively involved

In most funding options, the investor will only be interested in knowing whether they will make a profit at the end of the trading day. They have very minimal involvement in the running of the business. On the other hand, private equity firms are usually more involved in the business due to the amount of investment that they commit. Moreover, some private investors will put in their members’ self directed IRA to provide the necessary funds.

Private equity firms will be interested in every important decision that you make since they need to safeguard their capital. Perhaps, this is one of the best reasons why you should consider this option. The private equity ventures will link you to their important business networks developed over decades or years of experience.

Value Addition

Private equity investors will choose value addition instead of the flexibility that comes with other types of investment. One of the primary reasons for this is the need to keep a balanced portfolio. It is prudent to state that a private equity investment leads to better long term gains than public investment.

Many investors understand that the inability to withdraw their capital from private investments is less significant compared to the health of the investment. In many cases, investors prefer to wait for the IPO as the new businesses grow with the prospect of getting better returns. When you consider the scale of funding, the involvement, and expertise included in a private equity funding deal, it is easier to see why there are higher prospects of making more profits.

There are numerous funding options out there for new businesses. Private equity firm investment is the best choice for you since it allows professionals to guide you in business, has higher chances of success and has a bigger pool of financial resources. The logistics of making such arrangements work is also supportive of the operative goals of your new business.