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Things to Consider Before Seeking Small Business Private Equity

Things to Consider Before Seeking Small Business Private Equity

If you are thinking about seeking a deal for small business private equity, it is wise to think carefully before making a decision. It may be one of the most important decisions you will make for your business. So do your homework, ask the right questions, and make sure you have a clear idea of what and who you’re committing to before deciding on a partner.

What should you be looking for in a partner?

Finding the right fit with a partner for small business private equity is not an exact science. There are a lot of firms operating in different industries and with different investment styles. From creativity to comfort with risk, you should ask yourself what kind of small business private equity you’d like and why you’re seeking investment in the first place.

You may be interested in partnering with an equity firm solely to raise capital. Or you might be planning on retiring soon and hope to explore exit strategies. Ask yourself what kind of extra resources you want your equity partner to bring to the table. Perhaps you are looking for one with industry experience that can help you grow your business?

You will likely spend a great deal of time with people who buy into small business private equity. So ask yourself what you expect from them in terms of personality, business style, communication, work ethic, or even how they deal with conflict.

Answering these questions about potential buyers of small business private equity before committing to the relationship will give you a clearer vision of who you would work with best and how you could go about creating value, as well as better prepare you to deal with any challenges that may arise.

Is my management team ready to grow?

Just as you evaluate what you want in a partner, so too are investors evaluating your business’ potential. They look at a wide variety of factors in making their decision. They care about everything from your financials, to your passion and commitment, to your vision for business growth and strategy. They will also strongly consider the strength and balance of your management team.

Generally speaking, investors prefer to rely on talented managers to handle day-to-day operations in the business, while they provide strategic guidance and access to resources. That said, investors may gauge the readiness of your organization based on whether or not you have a solid management team in place. If you do, the chances that an investor will consider partnering with you are much higher. However, if you don’t have a management team, or your managers aren’t well aligned with your vision for the company, acquiring small business private equity may not make sense.

Desire to participate in future upside

Another important question to consider is whether or not you want to participate in future upside. If you are selling your small business, you may have the option to rollover equity after a transaction occurs. A portion of your ownership stake is rolled over into the new small business private equity capital structure in lieu of receiving cash proceeds.

This allows owners to retain a piece of the business after the sale and offers the potential to achieve an even better outcome if the business grows under new ownership. This can be a great arrangement for small business owners looking to stay involved through an extended transition.

Will the small business private equity transaction allow me to reach my financial goals?

For most business owners, seeking small business private equity means tapping into the most valuable asset an entrepreneur has – equity in their business. There are a lot of good reasons to raise capital for your small business, and there are a lot of good ways to do it. From the length of the relationship, to the amount of equity you will be giving away, to the types of shares and investor voting rights,-you must look at many different factors to determine if small business private equity will actually help you achieve your desired goals. Whether your goal is strategic growth or planning for retirement, it is important to confirm that any agreement you make will allow you to comfortably meet your personal financial goals even after all taxes and any broker commissions, if used, are paid.


As you can see, selecting a financial partner requires careful preparation and consideration. If you are interested in exploring financing options for small business private equity, take the time to ask these questions and investigate potential issues you may face. Keep in mind, that when it comes to private equity there is no one-size-fits-all solution. Making sure that you have a clear understanding of the facts and details surrounding your financing options is important because ultimately, the choice is yours.

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by Rebecca Jones // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.