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5 Mistakes to Avoid When Seeking Private Equity Financing

Private equity financing offers an attractive alternative to debt financing. A subset of equity financing, it involves the sale of equity in a private, non-publically traded business to an investment firm. You don’t need to perform an Initial Public Offering (IPO). Even if your business is private, you can sell equity in it to an investment firm. But there are several mistakes you should avoid when seeking private equity financing.

5 Mistakes to Avoid When Seeking Private Equity Financing

#1) Not Creating a Business Plan

You may struggle to secure private equity financing without a business plan. Investment firms want to know that your business has a clear path toward growth and, ultimately, profitability. With a business plan, you can show them exactly how you intend to achieve your business’s goals. If you don’t create a business plan, investment firms will probably reject your proposal for private equity financing.

#2) Selling Too Much Equity, Too Early

Some business owners make the mistake of selling too much equity in their businesses, too early. Private equity financing, of course, requires the sale of equity. But that doesn’t mean you should try to generate as much financing as possible by selling an excessive amount of equity in your business. As your business grows, it will become more valuable. Therefore, it’s typically best to start small with private equity financing while gradually selling additional equity as needed.

#3) Ignoring Value Proposition in Pitch

When pitching your business to an investment firm, don’t ignore the value proposition. Your business probably has competitors. Nearly all businesses have at least some competitors. Before investing in your business, most investment firms will want to know why your business is better than its competitors. A value proposition allows you to convey this information.

#4) Assuming All Private Equity Investment Firms Are the Same

Not all private equity investment firms are the same. There are different types of private equity investment firms. Some of them specialize in distressed businesses, for instance, whereas others specialize in particular industries or sectors.

#5) Inflated Valuation

Another common mistake to avoid when seeking private equity financing is giving your business an inflated valuation. All equity financing deals involve a valuation. When an investment firm purchases an equity stake in your business, it will assign a monetary value to your business. You can negotiate with investment firms to achieve a more attractive valuation. With that said, you shouldn’t begin with an excessive, highly inflated valuation. If the valuation is too high, investment firms may be turned away.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • October 26, 2022


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