How To Raise Capital From Private Investors


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Kison Patel is the founder and CEO of Chicago-based Hard Work Management Software, which uses Agile principles to innovate and modernize the financial industry. As a former M&A consultant with more than a decade of experience, Kison grew up seeing first-hand deep-seated structural problems and inefficiencies in industries.

How To Raise Capital From Private Investors

How To Raise Capital From Private Investors

McKinsey estimates that at the start of 2020, private equity firms will manage more than $4.1 trillion in assets worldwide.

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Firms such as BlackRock, Carlyle and KKR have not strayed far from the debate in this era of mega deals, making them attractive destinations for former students and professionals, often already working in investment banking.

In this article, we take an in-depth look at a career in private equity, discussing the industry as a whole, how to get your foot in the door, where you might fit in, what a routine might look like, and what to be like. increase. progress.

You’ll no doubt find some similarities to an investment banking career, but you may find the details of a private equity career more appealing.

Private equity firms (often called “GPs” or “general partners”) raise funds on behalf of investors (also called “LPs” or “limited partners”) and monitor the management and financial performance of those funds and sell their assets (“exit”), return profit to the private equity fund manager and its investors.

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Investors in private equity funds typically include pension funds, insurance funds, high net worth individuals and even other private equity funds.

Private equity firms such as Blackstone, Carlyle and Apollo Global Management have listed their stocks on public indexes, allowing retailers to invest in private equity.

A private equity firm is essentially a fund set up by an individual or group who, in most cases, have at least some experience in investment banking and who have sufficient knowledge, experience and (this is an important part) within the investment community. ) has a reputation and decides to start investing in companies. We can offer returns that exceed the market.

How To Raise Capital From Private Investors

We are aware of the importance of reputation, because everything in private capital depends on it. If the investor has no reputation, it will be very difficult to collect the necessary funds to buy the company.

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That said, there has been a trend over the past decade of very well-paid bankers leaving blue-chip banks with enough money to start their own PE funds.

Before forming a PE firm, its founders may have a good knowledge of the opportunities they want to exploit (eg underinvested markets, highly fragmented markets, well-connected markets, etc.).

From there, a private equity firm with enough cash will start investing in attractive opportunities based on the strategies it has identified.

They usually bring new management to the companies who are willing to work with the PE firms to realize their strategies. This can include any of the following:

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Over time, if these actions are successful, the company’s EBITDA will improve and the private equity firm will be able to sell the company for more than the original purchase price.

With a well-approached acquisition strategy, it is not uncommon for PE acquisitions to sell at double-digit purchase prices in just a few years.

When raising more money for a private equity (PE) fund, the general purpose is to put together an investment memorandum for the financing round.

How To Raise Capital From Private Investors

These describe the private equity firm’s strategy, its management experience, recent fund performance and the types of returns investors can expect.

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Analyzing potential future deals is just what it sounds like. PE firms are approached by business owners who want to sell part or all of their business, or they themselves approach firms that have analyzed a particular market.

Of course, there is ongoing analysis of individual markets to identify where opportunities are most likely to lie.

Historical trading performance is usually done with a peer (i.e. the PE manager) who sets the budget and investment goals for the company that the PE fund has already acquired.

In some cases, this may also include portfolio company executives who can provide feedback on the progress (or otherwise) of the company’s operations.

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Private equity analysts were traditionally hired directly from universities, but now this means that many firms have at least an internship at an investment bank.

Essentially, they are junior associates, inexperienced team members who are expected to close deals, contribute to investment papers, conduct industry analysis, and assist in the fundraising process.

Depending on their suitability, they may also be involved in aspects of complex financial modeling and due diligence procedures, such as interviewing portfolio company stakeholders.

How To Raise Capital From Private Investors

Associates are a seniority progression from analysts, which is reflected in the breadth and depth of their responsibilities.

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Associates can work alone or in small groups to open and close deals. They are expected to wear several hats at once – client facing, financial modelling, opening and closing deals – essentially becoming project managers for private equity funds.

The jump between analysts and associates is significant, turnover at the analyst level is similar to that of investment banks, and private equity firms are trying to figure out who has the ability to close complex deals.

Senior Associates have all the same responsibilities as Associates, but may have additional benefits such as bonuses and transfer.

The difference between the two is usually due to time spent at the company, likelihood of promotion to the VP level, and achievement of other KPIs. It is also common for companies to require their employees to complete an MBA before reaching the senior associate level.

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By the time you reach the ‍VP level, you are already a seasoned private equity player. Basically, you can (and often do) start your own fund.

A typical vice president has dozens or even hundreds of deals to close. Their role at this stage is to bring their expertise to larger deals, those close to completion but struggling, and to provide strategic insight to portfolio companies owned by private equity firms.

Communication and interpersonal skills are most important for vice presidents. He or she is responsible for fundraising. You should talk to potential investors primarily about why they should invest in the PE firm’s latest fund and the return they can expect from it.

How To Raise Capital From Private Investors

Managing Director (MD) or Partner: The Managing Director (MD) or partner of a private equity firm is its representative. Funding is usually highly dependent on market reputation.

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There is very little technical work at this stage. Practitioners spend all their time addressing LPs’ concerns and introducing them to the latest fund benefits. This also includes quite a bit of discussion about “why we failed to meet our goals this year…”.

By the time private equity analysts reach MD, they are assumed to be earning enough to put some of their money into funds, giving investors “skin in the game.” – The overall success of his or her success fund is huge.

The fact that private equity attracts so many investment bankers with six-figure salaries suggests that a career working with a general partner must be something very attractive.

Especially at the top, led by the likes of BlackRock, KKR and Blackstone, the current prestige associated with private equity means their positions are heavily oversubscribed.

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This means that the candidates are of high quality and are usually selected from top talent.

If you don’t fall into any of these categories, you’re much more likely to be hired, especially by large private equity firms.

But all is not lost. Follow the tips outlined in How to Get a Job in Private Equity. This makes it more likely that you will be hired.

How To Raise Capital From Private Investors

As we mentioned in our previous article on investment banking careers, the banking industry tends to be dominated by certain personality types, even after some belated moves by wise investment banks to diversify their workforces.

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Given that they have so many employees from investment banks, you might think that private equity firms have the same culture.

How can I get a job in PE? Is there a way to get into private equity without banking experience? Let’s dive into the topic and see if this is possible.

As mentioned earlier, hiring at private equity firms tends to emphasize experience over pure academic background.

But that means getting into a private equity firm isn’t easy and tends to be more difficult. First, there are fewer jobs in private equity than in investment banking.

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That’s why

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