What Is a Private Equity Firm?

Private equity firms are an investment company that raises funds from investors to purchase stakes in companies and help them to grow. This differs from individual investors who purchase shares in publicly traded companies and receive dividends but does not give them any direct control over the company’s decisions and operations. Private equity companies invest in groups of companies referred to as portfolios and try to take over the management of these businesses.

They usually identify a company that could be improved and buy it, making adjustments to increase efficiency, reduce expenses and help the business expand. Private equity firms might utilize debt to purchase and then take over a business this is referred to as a International Ventures Funds leveraged purchase. They then sell the company at profits and collect management fees from the businesses in their portfolio.

This recurring cycle of buying, improving and selling can be time-consuming and costly for companies particularly smaller ones. Many companies are looking for alternative funding methods to allow them access to working capital without having the management costs of a PE firm.

Private equity firms have fought against stereotypes that paint them as thieves of corporate assets, and have emphasized their management skills and demonstrating examples of transformations that have been successful for their portfolio businesses. However, critics, such as U.S. Senator Elizabeth Warren argues that private equity’s primary goal is quick profits, which undermines long-term goals and damages workers.