Articles

Raising Private Equity Funding.

Introduction:

As a business owner, you require funds to make your business thrive or expand. To ensure the same you need to evaluate funding requirements at different times of your business lifecycle. Whether the fund requirement is to tap a possible expansion opportunity or to meet the demand of an exponentially rising customer base, a business owner needs to identify and seize the right opportunity to opt for funding. With the identification of the right time and right funding partner, you can add your business to the growing list of unicorns in the country.

Different aspects of raising funds:

An enterprise at various stages of its lifecycle looks to raise funds, to achieve the desired objectives of the business. In simple terms, there can be two ways in which funds can be raised, Debt and Equity. When a business decides to go with an equity approach, they typically look for funding through a private equity partner.

Here we will discuss in detail various aspects, that are involved in raising funds through private equity. Broadly there are three stages of raising funds through PE:

• Preparation
• Negotiation
• Finalization

These stages are nothing but the broad outline of the steps that a firm needs to take when it opts to go for private equity funding. Each of these stages has been further broken into segments to make the whole process easier to comprehend.

Preparation:

Put your business affairs in order:

You started your business and kept working on it, still, there are many aspects of your business that are yet to be arranged. Proper arrangement of your financials, agreements, and all the necessary paperwork needs to be in order when you approach a private equity investment.

There are consultants and hired help that can help you prepare for your fund-raising plans. In simple terms, the business that you are going to put in front of an expert’s eyes should be sound both logically and in terms of papers as well.

Define your strategies:

After getting your house in order, the next step is to understand is, what exactly are you getting into? When you opt for a private equity investment you essentially sell a portion of ownership right to a third party. Your willingness to share the business control and being receptive to the idea of the outsider helps you determine a strategy with which you can approach Private equity firms.

After all, the firms that invest in your business do so when they see the potential of growth, towards which they not only employ their capital but also the expertise of their group. So before moving any further with the fundraising, decide upon these points.

Research:

After becoming a sound business on paper and having a clear outline of your willingness to share the portion of ownership against the capital, the next question that you come across is, which firms should be approached for raising funds.

Thorough research has to be performed here, as most of the Private equity firms are sector agnostic. Having said that, typically, they still outperform in some sectors and underperform in others. You need to identify a private equity firm that has a reasonable ratio of success when it comes to your sector. This is important as a private equity firm’s mentorship and networking may help you and your business to do wonders. For basic research, you may not be equipped with all the required data but the websites like CrunchBase and MCA can help a lot here. Secondly, if a firm in your region is chosen, there are a variety of ways to find out a connection and obtain the maximum possible information.

Negotiation

Presentation

After the identification of firms, the next step that comes is the actual presentation of your business to the private equity firms. These presentations need to be impeccable, there has to be some hard evidence of the business attributes that you claim. The same should be made clear to your audience.

This is one of the most important steps in your fund-raising process. These presentations need to be well vetted. You should deliver this presentation in front of family and friends to obtain confidence and questions if any that arise out of the same. Presentation of your business idea should be able to represent the essence of your business and it should make the audience listen and understand why the business is a solid bet to invest in.

The presentation though does not finalize the investment, but from here on things start to get serious and real questions about the viability of the investment start.

Follow up:

After the presentation of the business is done, the next step is follow-up. The follow-up can be from either side. During follow-up, Experts put the business prospects under microscopic evaluation to judge whether their investment can generate the desired return. This step generally entails that the interested private equity firms list will become evident, and here they will start with their due diligence process.

In today’s digital world the process of due diligence has become faster, but with a clearly defined flow of work to employees and consultants, you will be able to control a lot of possible outcomes. The major flaw that arises during the due diligence is the total scramble by the businesses. With the help of digital tools and consultants, all these can be easily managed.

After the due diligence is done, the time for getting the offers from private equity firms occurs.

Terms of Agreement:

Proper execution of the steps above and the sound business can help your company land plentiful offers, here is the time for you to negotiate for your business as per the plan and strategies you have defined beforehand. The best suited Private equity terms can be chosen and the terms of the agreement are set.

After a formal exchange of agreement, these have to be vetted by your legal teams, wherein they ensure that all your requirements are duly met and your business interests are properly protected. The same process goes on at the end of the private equity firm as well.

Finalization

Close the agreement:

When all the terms of the agreement are signed off by the legal teams, the time comes to sign the same and close the agreement.

Plan for the road ahead

Once the agreements are duly signed, you have successfully landed the funding and have your private equity partner support you with funds and expertise. Private equity firms also here exchange the inputs they have for the road ahead for the business.

Celebrate:

Your years of efforts in business have finally given you the rewards, not only in terms of funds but also with industry experts having a firm belief in your ideas. It is time to put your party goggles on, go out and celebrate.

Final thoughts 

Private Equity funds at different stages of business, different private equity firms have experience in working at firms in different stages of their life cycle. It is imperative for you to clearly define your strategies and identify the best-suited private equity partner to support your business needs. We at Siddhivinayak consulting provide private equity funding, we also help enterprises raise debt funding. To understand more about private equity and other fundraising options get in touch here.