What do startups and well-established companies have in common? They need investment. Investment to help them grow. Now, growing might mean building factories, hiring more staff, maybe creating innovative products, or buying another company. Investment could even help save a company from closing down. The investment might be borrowed money from a bank, or the company could sell shares and raise money from the stock exchange. But some companies are looking for something more. They're looking for smart money. An investment from someone who will help guide them in building their business. A private equity investor becomes part of the company they back, generally taking a board position with the long-term goal of nurturing a business, helping to foster growth, and creating additional value.
For a small business, this could involve helping turn a great idea into a commercial product or taking an existing product into new markets. For an established company that needs an extra boost, private equity experts can help management improve or find other companies to join forces with. If a big corporation sells a division that no longer fits into its business plan, private equity investors might acquire it. Private equity will give this division the special kind of attention it needs to grow.
Private equity investors can also help companies face challenges. This might mean revitalizing underperforming divisions or even restructuring a business to prevent it from failing altogether. Private equity fund managers invest money from pension funds, banks, insurers, or savings accounts. They also invest their own money, meaning they've got a direct stake in the company's success. When a company has reached its target, the investors sell their equity. The value created is then shared out between all the people who provided the original investment.
And whilst of course there are exceptions, most companies backed by private equity become stronger and more valuable. Which is why private equity matters. It helps to build better businesses, and that's good for employees, pensioners, investors, and the European economy.
