Private Equity Firm, Los Angeles Private Equity, Funding
Posted: Thursday, April 06, 2006
by Brian Bredenkamp
global solutions consulting
Xnergy, LLC
In the current economic environment, a private equity firm provides a stroke of luck to all those entrepreneurs who desire to start up, expand or revitalize their company or intend to buy a new business venture. Private equity is a long-term investment that is not only far less liquid than publicly traded stocks, but is also not subjected to the same high-level government regulations as stock offerings. It is a committed share capital that helps an unquoted company to grow and succeed.
A private equity firm is always in search of private equity investment opportunities, and to be swapped up with offers from reputed private equity firms, a capitalist has to put forth the evidences that prove that his business venture has the potential for realistic growth in the expanding market. A feasible, well-researched and well-documented business plan as well as a team of experienced management professionals must back up these evidences.
In a private-equity-funded business venture, the private equity firm works in conjunction with other providers of finance as pension funds, financial institutions, insurance companies and wealthy individuals. The private equity firm acts as general partner, while the other qualified investors become passive limited partners in this fund partnership. As the general partner, the private equity firm is entitled to ask for the required equity capital whenever it identifies an appropriate investment opportunity, and each limited partner is committed to provide it.
Private equity firm has the liberty to manage the fund’s investments and take all investment decisions. In return of the services, the general partner is compensated with a management fee, which is usually, defined as a percentage of the fund's total equity capital, and a carried interest that is defined as a percentage of profits generated by the fund. Normally, as a general partner of the fund, the private equity firm receives a management fee of 2 percent and carried interest of 20 percent.
A good private equity firm can provide a solid foundation to any business venture. Professional advisers, such as accountants and lawyers, who are experienced in the private equity field can not only introduce you to their private equity contacts, but can also help you to select the right private equity firm. It is advisable to select just a few firms in accordance with your business proposition.
While selecting a private equity firm, you should consider some essential factors as the stage of your company’s development, the type of private equity investment required, the industry sector in which your business operates, the amount of finance your company needs and last, but not the least the geographical location of your business operations.
Once, you have selected a few private equity firms according to your requirements, the next step is to prepare a business plan. In the business plan, you should discuss your business’ strengths and weaknesses, identify all the critical factors that will be responsible for its success, and your strategies to achieve profitable growth. It is only through the business plan that the private equity firm learns what you and your management are planning to do, what are your goals and how you would achieve them. Considering its importance, it is beneficial to get your business plan critically reviewed by professional advisers. They can help you to give the plan the appropriate focus. The private equity firm can take about three to six months to review your business plan and invest in your proposition.
Studies have revealed that private equity backed companies are usually more successful and the reason for this outperformance is the private equity firm, whose involvement does not end following the initial capital investment, but continues with useful advice on financial matters and guidance on strategic issues. In nutshell, a private equity firm provides a comprehensive financial package that spells success.
Nia Stefany
Managing Partner
http://xnergy.biz
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