PE investors typically provide capital in exchange for ownership or a stake in the company. PE investors often provide operational and management expertise and other resources to help the company grow and drive value creation.
A business should consider PE financing when it needs access to significant amounts of capital, expertise, and resources. This can be a good option for businesses looking to expand via new markets or products, organically or via M&A. It is also a good for recapitalizing debt (e.g., replace high-cost debt with more flexible equity) or providing liquidity to existing shareholders (e.g., owners seeking to retire or exit, or to replace the long-tail of early stage investors).
PE financing can be appropriate for businesses at different stages, depending on their needs and goals. Generally, PE financing is more common for established businesses with a track record of generating revenue and profits, but it can be suitable for earlier stage businesses that enjoy strong growth and can demonstrate path to profitability.
PE can be a valuable source of financing for businesses that are looking to grow as well as business owners looking for liquidity. Capital combined with expertise can be a powerful combination to help accelerate growth of a business and build sustainable value.
Alison Collins
Here is some guidance for when businesses should consider PE financing:
- Start-ups: PE financing is less common for start-ups, as they often have limited operating history and may not have reached profitability. Venture Capital is often more appropriate and will look for strong business plans, compelling products or propositions, and a talented management team.
- Early-stage businesses that have established their product or proposition and demonstrated product-market fit, but are focusing on growth ahead of profitability with significant market opportunity, may be able to attract PE investment to support growth. PE investors will be looking for businesses that have a clear path to profitability and a strong competitive advantage.
- Growth-stage businesses that have a proven track record of revenue and profits, and are looking to continue or accelerate growth, are often the most attractive candidates for PE investment. PE investors can provide capital and resources to support growth and take the business to the next level. The nature of support will depend on the business’ needs, but can include bringing in additional management, improving go-to-market strategy, product expansion, entering new markets, scaling operations, and supporting M&A.
- Mature businesses that are looking to recapitalize their debt or equity, acquire other companies, or exit the business may be good candidates for PE financing. PE investors can provide the capital and expertise needed to support these transactions and help the business achieve its goals.
In summary, PE can be a valuable source of finance for businesses that are looking to grow, or shareholders looking for liquidity. However, it is important to carefully consider the risks and benefits of PE and to seek professional advice. With the right approach, PE can be a powerful mechanism for building a successful and sustainable business.
More about the author:
Alison Collins, Head of ESG, Pollen Street Capital
Alison joined Pollen Street in 2018. She is Head of ESG, and Chair of the ESG Committee. She sits within the Pollen Street Hub – a team focused on accelerating growth and value creation by leveraging assets, expertise and ideas across the portfolio. Prior to joining Pollen Street, Alison spent 12 years at Experian in a number of roles including Strategy and Global Sales Operations. During that time, she was involved in a number of business and performance improvement programmes. Previously she worked in Strategy and Investor Relations at GUS Plc and qualified as a Chartered Accountant.