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private capital industry.
How does private capital work?
Private capital firms invest in businesses with a goal of increasing their
value over time.
Private capital investment firms use capital raised from a variety of
sources, including institutional investors such as superannuation and
pension funds, and Family Offices, and generally invest these funds in
promising private companies over a period of around five to seven years.
Sometimes this is referred to as ‘patient capital’.
Different types of private capital firms invest in businesses at
varying stages of their development and life cycle:
- Venture Capital firms: specialise in supporting businesses in their
start-up or early growth phase.
- Growth Private Equity firms: specialise in supporting businesses that are
in a major growth or expansion phase.
- Turnaround private equity firms: these firms help businesses that are
underperforming or in financial difficulty and play a valuable role in
reviving the operations and re-positioning the businesses for future
growth.
- Buyout private equity firms: invest in larger corporations who may be
divesting non-core business units, or seeking to take a publicly-listed
corporation back into private ownership.
- Private credit firms: Assist with accessing debt funding to help the
business invest in growth for the long-term.
After several years, private capital firms will usually look to divest all
or some of their interest in the business in order to provide capital and
returns back to the investors in the fund. Divestments generally occur
through disposal of equity or other interests in the business via trade
sale, secondary-market sale, share market listing, or a sale to management
of the business. In the case of private credit, divestment will generally
involve repayment of debt facilities or some other form of liquidity event.
Who are the key players?
The Australian Investment Council’s
member firms
comprise institutional investors, private capital investment firms, as well
as leading corporate and strategic advisors.
The benefits of investment into your business from private capital
firms
One of the key differences in the investment strategy of private capital
firms is that the investment is typically accompanied by strategic support
to help the business grow, expand and become more profitable in a
sustainable and measurable way. Often, this means that private capital
investors – as major shareholders – will become involved in supporting the
business through appointing one or more representatives to the Board of
Directors to assist the management team with developing and executing the
businesses’ strategy.
- Long-term injection of capital
- Support from a business partner that shares their skill, expertise, risk
and rewards
- A strong capital base for future growth, with additional funding
available if required
- Business mentorship and strong governance on strategic, operational and
financial matters
- Access to the investor’s alliances and networks to assist with key
business priorities such as talent management and recruitment, accessing
international markets, and introductions to strategic partners
- Developing a capital structure strategy that is best suited to the
business, including long-term investment and divestment plans.
One of the key benefits of working with private capital firms is that
they provide your business with strategic support to help your business
grow, expand and become more profitable.
Want to learn more?
Register for our next PE101 or VC101 course.