Once you decide you want your own private equity shop, oneof the first things you need to do would be to raise capital. And while it’s amulti-step process, there are a few things to consider when you pursue thisventure. Keep in mind that raising equity can be time-consuming, but if you gothrough the right steps, it will become a lot easier.
It’s very important to define how success looks in your caseand ensure that you present a business plan to your potential investors.Raising equity requires you to showcase that, your private equity shop issomething worth investing in especially if you have strategy that sets youapart. Most investors want to know your business model, the budget that youhave, your acquisition strategy and if there’s any industry fit.
Send as many business plans as you can to investors, reachmultiple people and schedule meetings. Let them know how your strategy willplay out, how it operates, and what benefits investors will have.
You will have multiple offers or capital providers and youneed to choose which investors you want to close a deal with. That means youneed to negotiate the partnership agreement, lock in their duties, but alsowhat expectations are there from your side as well. Make sure that both partiesare happy with the investment deal, as it will end up making things a whole loteasier. You also want to have the legal team go through everything and highlightany possible concerns or issues that might arise.
· It’s always a very good idea to understand theamount of experience the investor has within your sector
· Establish a personal relationship with theinvestor by meeting face to face and always ensuring you are readily availablefor any communication
· Researching the transaction size and seeing howmany investors you need can be very effective, and it will help streamline theprocess
When you want to raise equity capital, it does help yourbusiness. Plus, the truth is that, in most cases, equity will provide benefitsat a later date. Investors are willing to spend some money now, knowing the ROIcould be great in the long term.
Additionally, equity investment is great because it willbring on new people to the operation in the form of investors. That willprovide more connections, new skills which the company can rely on, so it trulyis something very effective and helpful as well. Plus, you also get to harnessthe experience of someone who knows the industry well and who could provide newideas and revenue growth opportunities, something that does help more than youmight expect.
· Dilution appears when you raise equity finance,but you’re selling a stake in your business to do that via issuing shares. Yes,you get more capital, but it comes with a cost. You are reducing your share inthe business. That dilutes your influence within the company.
· Share classes will differ in importance andrights. It’s basically the ability to issue multiple categories of shares atyour own pace, each with its own benefits.
· Valuation also matters because it allows you tounderstand the current value of the company and how much your shares are worthat this time!
We believe that raising equity can take time, and it’s oneof those processes that will require plenty of preparation. However, it’simperative not to rush and instead go through every process with the utmostpreparation and focus. Getting the right investors can make a huge difference,but you don’t want to choose just about anyone. Someone with industryexperience, knowledge, and funding can be the ideal partner, especially for aprivate equity shop!
