3 Myths about Private Equity Investors

traditional financingMyths about private equity can inhibit entrepreneurs from pursuing business opportunities and making rational decisions.  Private equity financing is a complex decision for business owners.  These owners should analyze other financing options and goals for future growth of the company before making important investment decisions.

Here are three myths about private equity investors

1.  Private equity investors take advantage of business owners.

Private equity is not intended to be a win for the investor and a loss for the business owner. The investor’s best interest is that the entrepreneur grows the business and increases its value so that BOTH sides win.  Private equity investors are not profitable if the value of the company depreciates.

Many business owners perceive private equity investors as greedy and manipulative in cutting them out of the success of their companies.  However, most of the time these perceptions arise when entrepreneurs:

  • Lose control
  • Blame private equity investors for the demise of their companies

As long as you leave at least half of the company in your ownership, as an entrepreneur, you will have control over your company to make important strategic decisions. Most private equity investors don’t want to run your company or take advantage of you. Instead, they just want to contribute to your business’s success. 

2.  Private equity investors do not add value beyond their monetary investments.

While many people view private equity investors solely as sources of capital, this misconception is untrue. Most investors have expertise and experience in the various industries. Many experience come from past investments in successful companies and others from being entrepreneurs and chief officers themselves.  They have the know-how to advise businesses from an impartial outlook and to add value by bringing in fresh ideas and perspectives.

Investors also have a network of connections to help companies advance and develop strategic partnerships. An investor with a good understanding of the company that he or she invests in will do more than just invest money into a business. They will help grow the company’s value in a rational and sustainable approach.

3.  Once a private equity investor is ready to exit his or her investment, the business owner has to sell the company or take it public.

Business owners are not forced to sell their companies or take them public once a private equity investor decides to exit.  Private equity firms usually invest in companies with a goal of exiting within five to eight years. The private equity firm’s partners expect liquidity at a certain point in time. As a result, the firm cannot hold on to all investments forever. At this point, the business owner has several choices, including raising capital from a new private equity investor or a new partner

Avoiding these common misconceptions will allow you to focus on the positive benefits. Therefore, you can make better decisions about private equity investments.

Learn how to apply concepts like this in your career with CFO Coaching.  Learn More

private equity

, , , ,

No comments yet.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.