Securing Finance through Private Equity: Are you really ready for it?

Business Growth pillar #5

Businesses fail due to diverse reasons. However, scarcity of funds remains as one of the major contributors to business failure. In today’s highly competitive world, businesses perish when they fail to grow. With growth being primarily fueled by continuous investments, a dearth of adequate funding may actually hinder growth, which, in turn, may shorten the lifeline of your business. The inflow of external finance can promote a drastic growth of your business only if you know how to capitalize on it. Additionally, you should have certain key things in place in order to be able to attract the right type of finance.

Finance - Business Growth Pillar #5

What do you need finance for?

Why do you need finance to grow? You may need finance to grow in a number of different ways:

  • Expand into new markets
  • Acquire human capital and get the right talent in place
  • Develop new products or services
  • Expand the reach through marketing.

So finance is required to support major functions, and it can really help accelerate the growth of a good company.

Getting Funded through Private Equity

So how can we attract finance especially by means of private equity?  When you opt to raise funds through private equity, a group of financiers lends you money and, in return, they take a shareholding in your company, so they’re invested in that particular way. According to the latest weekly DNA Money update, PE-backed companies outperform various companies that are listed on the SENSEX. Additionally, it shows that the revenue growth of PE-backed companies over a five-year period is 40% as opposed to just 18% for the NIFTY Midcap or just 15% for non-PE-backed listed companies.

Interestingly, the asset growth is also 46% higher compared to just 16% with non-PE-backed listed companies, and 18% for SENSEX-listed companies.

We will reveal 4 key steps, which will improve your readiness to acquire PE finance:

  1. Do you really have that mindset to opt for private equity funding?

Simply put, private equity can really play an incredible role in helping you grow your business further, and there are some key elements that you need to have in place to be able to attract private equity to your business. However, it’s really important to get the right mindset in place and grow and treat your business like you’re going to sell it. That way, you can set up the processes in an appropriate manner and this will help your business grow professionally and continue working without you, and you’ll have made up your mind that, yes, you’re willing to give away a little bit of control and shareholding, and that’s an important part.

2. Building a strong team with the right human resources

Secondly, you need to build a strong corporate finance team, which will require you to identify the right human talent and to deploy strong financial discipline that will support all functions. You should create a transparent system and with a strong team, you can surely instill transparency in all your operations . Lenders have the right to get access to accurate information and when they feel confident about your business, they can help you accelerate the growth of your business.

3. Identifying a business model that will generate cash flows

The third thing is to make sure that you both have strong cash flows and profitability. It’s not just good having profitability by itself. Revenue is vanity and profit is sanity, so it’s really important that you have strong cash- flows because the PE firm is going to be giving you the money based on future cash-flow. So it’s important to have strong cash-flows in place, and you need to have a business model that is able to generate cash flows on a continuous basis.

4. Strong governance is the foundation for attracting investments

Lastly, you want to make sure that you have strong governance and strong controls in place and most importantly, transparency in the way in which your company operates. An investor is more likely to feel more concerned if he finds people engaged in activities that do not seem to be transparent and so it’s really important to have strong governance and transparency in place. This way, you are able to attract the right finance and grow.

Here’s something interesting for you: Watch Mr. Harsh Mariwala, the founder of Marico Industries speak about the 8 fundamentals required to prepare your company for funding.

Check out other Growth Pillars:

#1 :   5 Ways to be a more Customer Centric Company

# 2:  How to develop your Company’s second line of Leadership?

# 3:  How to have happy and engaged Employees

# 4:  How to 4X your Business Growth – Focus on your core Activities

How are you looking to fund growth and what are you looking to fund growth for? Like, share and comment below.

LIKE THIS POST?

Sign up for my blog updates and never miss a post. I’ll send you a FREE eBook as a thank-you.

Please note: I reserve the right to delete comments that are offensive or off-topic.

Leave a Reply

Your email address will not be published. Required fields are marked *

One thought on “Securing Finance through Private Equity: Are you really ready for it?

  1. Neeraj, as always your blogs are an eye opener of sorts. I say this because of the information you provided on the performance of PE backed companies vis a viv the listed ones.

    Do you personally or someone if we could be put on to who could facilitate PE funding?