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5 Tips To Attract Private Equity

    

Companies of all sizes and in all sectors are almost always in need of capital infusions, at least at some point in their existence. These days, there are several interesting ways for companies to raise the funds they need. Private equity can be particularly helpful for companies looking to grow substantially, tap entirely new markets, acquire another entity, exit for a handsome sum in the future, and/or simply use capital to expedite any number of other, well-planned goals. But, obtaining an investment from a private equity firm is usually a lot harder than obtaining it from other sources. Companies hoping to leverage this potential avenue have to be at the top of their game. Here are 5 tips to attract private equity:

1. Maintain Meticulous Records

Any reputable investor is going to require a company to disclose a ton of information about its operations, practices, and finances, so having meticulous records is a must. Even a small investment is going to involve a fairly detailed review of a company’s dealings, so every detail must be managed well. Having well-organized records will both impress prospective investors and facilitate the progress of any investment deal if and when it arises. To ensure records are meticulously maintained, it is a good idea to establish a corporate repository from the very beginning of a company’s existence and to tend to the organization of important documentation on a regular basis. If an online database is utilized, such as a virtual data room, this can easily become the starting point for a deal room in the event a due diligence investigation is necessary.

2. Institute Strong IP Protections

Successful companies usually have a range of both tangible and intangible assets. It is clearly easier to protect the tangible assets by storing things in a secure location, obtaining insurance, and taking other measures to safeguard any physical items. Of course, businesses also have some intangible assets, which in some cases is some form of intellectual property (IP). IP can be a bit harder to identify and thus protect, but companies must ensure that they do so to protect the value of that IP. For some companies, losing IP may mean losing the business. And, when it comes to obtaining funds from private equity firms, there is going to be an unwavering expectation that the right filings and applications have been submitted.

3. Staff Wisely

Investors are often as interested in the people behind a business as they are the money that the business generates. In many private equity deals, the investing firm will be working closely alongside the company to improve operations and maximize profitability. Granted, there may be some situations in which there is a straight buyout. But, for a regular type of investment deal, the investment firm is going to be taking a look at the leadership team and employees to ensure that there is trust and confidence in how the company is run.

4. Expand Market Reach

Private equity firms want to see that a company it plans to invest in has a lot of growth potential. One way to demonstrate this is by gradually expanding the company’s market reach. This can be accomplished by dabbling in an array of products, entering a new segment of the market, or targeting a different type of customer base. In addition to showing that there are various possibilities, engaging in an ambitious expansion plan also helps show that the leaders are bold and courageous, which is a good way to attract the interest of savvy investors.

5. Outline the Exit Plan

For most private equity firms, an investment is meant to last for five or so years and then the goal is to liquidate via a massive sale or perhaps by launching an IPO. Company leaders of course often have similar plans, but getting a private equity investor to fork over the capital needed to get to that point is going to require some serious convincing. For this reason, it is important for company leaders hoping to go that route to incorporate a coherent exit plan into their overall business model and strategic plan.

A CFO's definitive guide to document retention