Should I Fundraise with Private Equity?

Private equity investors pool their money together to buy and take control of an existing company that is typically more mature than a startup. The goal of private equity is to improve the company's performance, increase its value, and then sell it for a profit.

Advantages of Fundraising via Private Equity

As a startup founder, private equity may not be as relevant to you as venture capital or angel investing, as it typically involves more established businesses with a proven track record. However, if your company has grown and matured to a certain point, private equity may become a viable option for you.

Here are some advantages of fundraising via private equity:

  1. Access to capital: Private equity firms can provide a significant amount of capital, which can be especially beneficial for businesses that are looking to expand or make acquisitions.
  2. Expertise and Resources: Private equity firms often have a team of professionals, such as investment bankers and management consultants, who can provide expertise and resources to help the company grow.
  3. Networking Opportunities: Private equity firms often have extensive networks and connections in the business world, which can open up new opportunities for the company.
  4. Operational Improvement: Private equity firms may bring operational expertise and resources to help improve the efficiency and profitability of the company.

Disadvantages of Fundraising via Private Equity

However PE isn't for everyone. Not only do private equity investors look for more mature ventures, they also often require stricter terms than other fundraising methods.

Here are some disadvantages of fundraising via private equity:

  1. Dilution of Ownership: Private equity firms typically require a significant portion of ownership in the company in exchange for their investment. This can result in dilution of ownership for the founders and existing shareholders.
  2. Loss of control: Private equity firms may have a say in the decision-making process of the company and may require a seat on the board of directors, which can result in a loss of control for the founders.
  3. Short-Term Focus: Private equity firms may have a shorter-term focus on maximizing returns, which may not align with the long-term goals of the company.