The private companies in the past have relied heavily on the banks for the purpose of debts for growth opportunities. Times have changed and now the companies look for private equity partners in traditional business for the purpose of capital required. This has come up as a matter of fact that earlier option required capital constraint of personal guarantee requirements, which was difficult. And now traditional industries can decide between using bank debt and private equity to grow their business.
Private equity partners can be found depending on the companies. They can be grouped into three basic categories: venture capital, middle-market private equity and mezzanine debt.
Mezzanine debt has two components: above prime interest rate paid annually and option for getting converted into ownership in the company at the time of liquidation.
Middle-market private equity suit those who focus on lower level of business risks. These provide resources and capital which senior bank can't provide. If one is looking for this option, he should watch out for these:
- The partner has revenue greater than $10 million.
- The company has been in business for at least three years.
- Others have strong ownership interest in the company.
The idea behind this is to give one's company an aid from the private investor's expertise and capital to give the company growth opportunities.
To find the right private equity investor you can visit the private equity investors' websites for good description of the investment focus for each fund. There are also websites with a listing of business investment corporations by geographic region and current contact information.
Venture capital is ideal for companies at early-stage in their life. They have high risks involved but also have high returns.
Before approaching an equity partner you must develop written business plan and projected financial statements to follow and implement.
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