How to Attract a Private Equity Firm to Invest in Your Business

For a small business eager to grow in capacity and reach, private equity firms can provide the necessary support and capital to reach key organizational goals. Here is a brief overview of how to find and connect with private equity firms and ultimately get them to invest in your business.

What is a private equity firm?

Private equity is a form of capital investment that entrepreneurs can use to grow their businesses. Private equity is a viable pathway for small business owners wanting to access capital and funding by providing the opportunity for investors to directly invest in their companies. Private equity firms can contribute to businesses with investments, seed funding, loans, and other support systems. Growing businesses can benefit from private equity firms because they provide a safety net, capacity for growth, and opportunity for experimentation.

Private equity investors are institutional and accredited investors with the capacity to delegate a large amount of money to smaller companies, so small business owners without an initial public offering (IPO) often consider this type of funding.

How to attract private equity investors

If you’re interested in private equity to fund your business, here are a few ways to make your business attractive to potential investors.

Create a detailed business plan

Having an effective business plan is the best way to communicate with potential investors and funders about your company’s goals, current operational structures, and capacity for return on investments. Your business plan should answer any initial questions investors may have and outline the next steps.

There are many types of business plans to consider when writing yours. The most common business plan types are:

• A traditional business plan: The traditional business plan offers a thorough and in-depth view of your company. The plan typically includes an executive summary, company description, market analysis, organization and management outline, service or product line, marketing and sales information, funding requests, and financial projections, and it usually closes with an appendix. This detailed overview allows investors to understand the goals for your business and how you will achieve them.
• A lean business plan: The lean business plan is usually an outline or one-pager that businesses use as an overview of their company. Leveraging charts and graphics, these types of business plans touch on key partnerships, activities, resources, value propositions, customer relationships, and more.

“Growing businesses can benefit from private equity firms because they provide a safety net, capacity for growth, and opportunity for experimentation.”

Protect your intellectual property (IP)

As you’re building and innovating your business, you must secure its value by protecting your intellectual property, which includes intangible creations like domain names and company designs. Protecting your IP with trademarks, patents, copyrights, and the right internal operations will reassure private equity firms that you’ve taken the proper steps to secure your business assets.

Demonstrate your market potential

Attract investors by demonstrating your competitive advantage, market potential, and opportunity for financial returns. Investors evaluate a business’s market potential through its potential revenue of $300 to $500 million, its edge over competitors, its business model with profit margins of at least 50%, and its reputable and effective CEO.

Maintain detailed records

Keeping and maintaining detailed records of your business is essential for the business’s growth as well as appealing to investors. This can be information regarding business inception, operations, finances, organizational history, and more. By updating and keeping track of these records, you’ll attract investors by showing commitment, reliability, and strong management. Keep track of these records through databases, archives, and other online tools.

Outline an exit plan

Private equity firms usually support businesses for an average of five years. This is to provide the business with enough capital either to prepare for an IPO or to be purchased by another company. By providing investors with an exit plan pathway, businesses are able to take that next step.

Such steps may include:

• Selling shares as part of the IPO.
• Securing a strategic acquisition or, in other words, selling your business to another suitable company.
• Allowing private investors to sell their stakes in the business to another private equity firm.
• Repurchasing equity states from private investors.
• Liquidizing company assets (typically as a last resort).

To learn more about how to successfully pitch investors, read our complete checklist for startups.

Story by Ami Scherson, CO, U.S. Chamber of Commerce

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.