When Is Private Equity a Good Financing Option?

Private equity is primarily an excellent financing option for companies in a growth phase or undergoing significant transition. This form of capital is suitable when you need substantial funding for expansion, acquisitions, or restructuring, and are willing to relinquish some ownership and control in exchange. Private equity is optimal for businesses seeking not just capital, but also strategic support, network access, and specific expertise to advance to the next level. Careful consideration of growth ambitions versus degree of control is essential when making this choice.

What is private equity as a financing option?

Private equity is a form of business financing where investment funds provide capital to companies in exchange for significant ownership interest. Unlike bank financing, it’s not a loan that needs to be repaid, but an investment where the private equity party becomes an actual shareholder.

This financing form is characterized by larger investment amounts, typically starting from several million euros. Private equity funds gather capital from institutional investors and high-net-worth individuals, then invest this in companies with growth potential or those requiring operational improvements.

What distinguishes private equity from other options such as bank financing is that you receive not only money but also access to knowledge, expertise, and networks. Unlike venture capital, which focuses more on startups and early growth stages, private equity typically targets established companies with proven business models.

In which growth phase is private equity most suitable?

Private equity is particularly suitable for companies in the expansion phase, consolidation phase, or turnaround situation. For businesses looking to scale up, expand internationally, or significantly increase their market share, private equity offers the financial firepower often necessary for substantial growth.

In the expansion phase, private equity helps accelerate growth through acquisitions or by providing capital for new markets. For companies in a consolidation phase, private equity can be valuable for acquiring competitors and strengthening market leadership.

Private equity can also be a solution for companies in a turnaround situation, experiencing operational challenges but with potential. In this phase, investors bring not only capital but also the expertise to get the business back on track.

Private equity is less suitable for startups or very young businesses without a proven business model. These companies are better served by other forms of financing such as venture capital, angel investors, or grants.

What advantages does private equity offer beyond capital?

Private equity offers businesses much more than just growth capital. One of the most important added values is the strategic guidance you receive. Private equity partners often have extensive experience across various sectors and can help refine business strategy.

Additionally, you gain access to a valuable network of industry contacts, potential customers, and suppliers. This network can open doors that would otherwise remain closed, which is essential for companies looking to expand internationally.

Private equity partners also bring operational expertise. They often have specialists who can help optimize business processes, improve profit margins, and implement scalable systems.

For companies that are internationally active or wish to become so, private equity can also provide a better financial structure for global operations. This aligns with our multi-currency IBAN accounts, which allow you to manage accounts in different currencies under your own company name without needing to set up foreign bank accounts.

How do you prepare your company for private equity financing?

Good preparation significantly increases your chances of attracting private equity investments. Start by organizing your financial administration. Ensure you have up-to-date annual accounts, reliable forecasts, and a clear picture of your cash flow and profitability.

Develop a compelling growth plan that clearly shows how the investment will be used and what return it will generate. Private equity funds look for a clear path to value creation and a realistic exit strategy after 4-7 years.

Strengthen your management team. Private equity investors scrutinize the quality of management. A strong team with complementary skills increases confidence in your company.

Also work on a solid governance structure with clear reporting and decision-making processes. This gives investors confidence that their capital will be well managed and that they will have sufficient insight and influence.

Key considerations when choosing private equity

Before choosing private equity as a financing option, it’s important to weigh several key points. First, you must be willing to give up some ownership and control of your company. Private equity investors expect substantial influence over strategic decisions.

Think carefully about the match with your potential investor. The relationship with your private equity partner is intensive, so look for a party that shares your vision and has experience in your sector.

Consider the time horizon. Private equity investments are typically aimed at an exit within 4-7 years. You must therefore be willing to work toward a sale, IPO, or other exit within that period.

Also consider alternative forms of financing that might better suit your situation. For certain growth or export plans, specific financing solutions like those we offer at Taper may be more appropriate, especially if you do business internationally and need flexibility in different currencies.

At Taper, we understand that every financing choice must fit the unique situation of your business. Whether you choose private equity or another financing route, we’re ready to make your international payments run smoothly with our multi-currency services.