How to Find Private Equity Investors

Finding Private Equity Firms

When Private Equity Makes Sense

PE Investment Criteria and Requirements

Revenue thresholds: $5M-$50M minimum for most firms. Growth PE accepts lower ($2M-$10M) with strong growth (30%+ annually). Buyout PE typically requires $10M-$50M+. Revenue thresholds vary by firm size and focus. Smaller PE firms accept smaller businesses. Larger PE firms require larger businesses. Research firm-specific requirements.

Profitability requirements: EBITDA margins matter. Most PE firms require profitability or clear path to profitability. Typical EBITDA margins: 10-20%+ for buyout PE, 5-15% for growth PE. Unprofitable businesses need strong growth or clear profitability path. PE evaluates EBITDA improvement potential through operational improvements.

Market opportunity: Room for growth, operational improvements, or add-on acquisition opportunities. PE firms want businesses they can improve and scale. Small markets or declining industries reduce PE interest. Large markets with growth potential attract more PE firms. Show market opportunity and growth potential.

Management team: Strength and depth matter. PE may replace underperformers or add management. Team quality critical for PE confidence. Weak teams reduce PE interest. PE evaluates: management experience, execution ability, and willingness to work with PE. Show strong management team or willingness to accept PE management changes.

Operational improvement potential: PE firms identify operational improvements: cost reductions, efficiency gains, revenue growth, or add-on acquisitions. Businesses with clear improvement opportunities attract more PE interest. Show operational improvement potential. PE evaluates how they can improve business operations and returns.

What varies: PE criteria differ by firm size, focus, and strategy. Smaller PE firms accept smaller businesses. Industry-focused PE firms evaluate industry-specific criteria. Growth PE focuses on growth potential. Buyout PE focuses on operational improvements. Research firm-specific criteria before outreach.

How PE Firms Source Deals

Investment banks and intermediaries: Primary source for larger deals ($10M+). Banks provide: deal structuring, due diligence support, and investor introductions. Banks charge fees (1-3% typically) but improve access and deal terms. Banks work with businesses ready for sale or significant capital raise.

Direct relationships: Industry contacts, business owners, professional advisors. Work for smaller deals ($5M-$20M) or businesses with strong relationships. Direct relationships provide faster access but require existing connections. Building relationships with PE firms takes time (6-12 months).

Cold outreach: Rarely works for PE. PE firms receive hundreds of unsolicited pitches monthly. Response rates: 1-3% for cold outreach. PE firms prefer warm introductions through trusted sources. Cold outreach works only with exceptional businesses and strong fit. Most cold outreach gets ignored.

Portfolio company referrals: PE firms get referrals from portfolio companies. Portfolio companies know PE criteria and refer qualified opportunities. Building relationships with PE portfolio companies improves access. Portfolio company referrals have higher response rates (20-30%).

Industry events: ACG events, industry conferences, and PE networking events. Provide opportunities to meet PE partners. However, events alone don't guarantee access. Building relationships through events takes time. Immediate capital needs require other channels.

What varies: Deal sourcing differs by deal size and firm type. Larger deals ($50M+) typically go through investment banks. Smaller deals ($5M-$20M) may work through direct relationships or brokers. Growth PE may accept more direct outreach than buyout PE. Research firm-specific sourcing preferences.

PE Investment Structures and Terms

Controlling stakes: 51%+ ownership typical for buyout PE. Minority investments (20-49%) less common, typically growth PE. Control allows PE to make operational changes, add management, and drive improvements. Businesses must be willing to give up control. Unwillingness to give up control eliminates buyout PE option.

Management fees: 1-2% annually on invested capital. PE firms charge management fees for operational involvement and oversight. Fees reduce returns but provide operational value. Understand fee structure and value provided. Fees vary by firm and deal size.

Carried interest: PE firms receive 20% of profits above hurdle rate (typically 8-12% preferred return). Carried interest aligns PE incentives with business performance. Structure affects returns. Understand carried interest structure and impact on returns.

Board seats: PE firms typically take board seats (majority control for buyout PE). Board seats allow PE to influence strategy and operations. Businesses must accept PE board involvement. Board composition affects decision-making and control.

Exit timeline: 3-7 years typical. PE firms plan exits: IPO, sale to strategic buyer, sale to another PE firm, or recapitalization. Exit timeline affects business planning and operations. Businesses must align with PE exit timeline expectations.

What varies: Investment structures differ by deal size, firm type, and business needs. Growth PE structures differ from buyout PE. Smaller deals may have simpler structures. Larger deals require more complex structures. Legal counsel essential for structuring. See our due diligence guide for legal considerations.

PE Process and Timeline Expectations

Preparing Your PE Pitch

Executive summary: One-page summary covering: business description, market opportunity, financial performance, growth potential, and investment ask. PE firms read executive summaries first. Strong summaries get meetings. Weak summaries get rejected. See our pitch deck guide for structure.

Financial presentation: 3-5 years historical financials, 3-5 year projections, EBITDA analysis, cash flow analysis, and key metrics. Financial accuracy critical. Errors signal poor management or dishonesty. Professional accounting helps. PE firms evaluate financial health and trends.

Market analysis: Market size, growth trends, competitive landscape, and positioning. PE firms evaluate market opportunity. Large markets with growth potential attract more PE interest. Show market research and size calculations. Competitive analysis shows you understand market.

Operational improvement opportunities: Cost reductions, efficiency gains, revenue growth, or add-on acquisitions. PE firms want to see how they can improve business. Show operational improvement potential. PE evaluates improvement opportunities and potential returns.

Management team: Bios, relevant experience, roles, and willingness to work with PE. PE firms invest in teams. Strong teams attract more interest. Show relevant experience and execution ability. Address experience gaps proactively. PE may replace or add management.

Use of funds: Detailed breakdown: growth capital, operational improvements, add-on acquisitions, or debt reduction. PE firms want to see how capital will be used. Detailed use of funds shows planning. Missing use of funds raises questions. Show milestones you'll achieve with PE capital.

Common PE Investment Mistakes

Wrong fit: Approaching PE for early-stage businesses or businesses unwilling to give up control. PE works for mature businesses ready for scaling. Wrong fit wastes time and damages reputation. Match investor type to business stage.

Insufficient revenue: Approaching PE before reaching revenue thresholds ($5M-$50M+). Below thresholds, consider other options. Building revenue first improves terms and PE interest. Revenue growth improves PE interest.

Missing financials: Incomplete or inaccurate financial statements. PE requires 3-5 years of financials. Missing or inaccurate financials = deal killer. Professional accounting helps ensure accuracy. Financial accuracy critical for PE confidence.

Unrealistic projections: Overly optimistic projections without basis. PE firms evaluate projection realism. Unrealistic projections reduce credibility. Realistic projections based on historical performance and market research build trust.

Unclear value proposition: Not showing how PE can improve business or generate returns. PE firms want to see improvement opportunities. Unclear value propositions reduce interest. Show operational improvement potential and growth opportunities.