Growing a company requires more than just good ideas; it also necessitates the right mix of capital, strategy, and leadership. For many companies aiming to scale further, external support may be necessary to propel their growth efforts successfully. One of the most popular options for driving business growth is private equity. It is an investment firm that not only provides capital but also valuable expertise and industry connections. Partnering with private equity firms helps in strengthening operations and opens doors to new opportunities. This article will examine how private equity facilitates company growth through various factors and contributes to their success.

How Does Private Equity Work?

As an investment firm, private equity (PE) firms not only provide capital for their target company, but also operational support. This includes financial expertise, operational experience, and an extensive network of industry contacts. In the process, PE firms raise capital from institutional investors and high-net-worth individuals. The capital was then used to buy stakes, sometimes full ownership, in private companies or take public companies private. PE firms aim to improve the acquired company’s operational efficiency and profitability through strategic direction, financial restructuring, and governance changes over a period of 4 to 7 years. They also play an active role in the company’s management or board, executing growth strategies. After improving the company’s value, PE firms sell their stake for profit, generating returns for their investors. 

What are the Types of Private Equity Strategies?

To better understand how private equity (PE) firms help companies grow, it’s important to know the various investment strategies employed by PE firms. Each type of private equity strategy plays a crucial role in creating long-term value. 

Growth Equity

Growth equity is a private equity strategy that targets established companies with proven business models in a late-stage, high-growth phase. These companies seek funds to accelerate expansion or enter new product development. Unlike traditional private equity, which acquires majority or full ownership with operational overhauls, growth equity typically takes minority stakes with little to no debt. The return of growth equity depends on the company’s ability to grow revenues and profits rapidly over a medium-term horizon (3 to 7 years)

Leveraged Buyout

In a leveraged buyout (LBO), private equity firms acquire a company using a significant amount of borrowed money (debt) to fund the purchase. They also contribute a relatively small portion of equity capital. The acquired company’s assets and cash flows typically serve as collateral to secure and repay the debt. The goals of a leveraged buyout are to enhance returns on equity by using debt that is often tax-deductible and to improve the company’s profitability through operational improvements during ownership. 

Venture Capital

Venture capital (VC) strategy focuses on investing in early-stage or startup companies with high-growth potential. While traditional private equity invests in both private and public companies, often mature or established ones, venture capital typically targets young companies that need capital to develop or expand. Venture capital involves smaller amounts of investment with a higher risk-return profile.Read More: Top Private Equity Strategies for Long-Term Investment Success

How Private Equity Helps Companies Grow?

When exploring how private equity helps companies grow, it becomes clear that their support extends beyond funding to include operational support. Let’s explore various support private equity offers to help companies improve their business operations during ownership:

Capital Injection

One of the primary benefits of private equity is the capital injection it provides to help businesses grow, enter new markets, develop new products, or invest in cutting-edge technology. Different from traditional loans, private equity funding frees companies from the pressure of high-interest payments. This helps business owners to focus on long-term growth without short-term financial stress. 

Operational Expertise

Private equity firms offer operational support to assist in businesses’ growth. This includes industry knowledge and operational expertise to improve businesses’ performance. They collaborate closely with company management to streamline processes, optimize resource allocation, reduce costs, and implement best practices. This operational support will increase efficiency and profitability, leading to sustainable growth.

Management and Leadership

Another support provided by private equity firms is assistance in the company’s management and leadership. They help strengthen the company’s management and leadership by appointing experienced executives or coaching existing teams. They may replace underperforming managers with proven leaders who can effectively execute growth strategies. These leadership changes help transform operations and align the company with growth goals.

Access to Industry Networks

Private equity firms often have access to a vast network of industry connections. They include potential customers, suppliers, business partners, investors, and other key stakeholders. Industry networks facilitate business development, strategic partnerships, and expansion opportunities that may be difficult for companies to achieve independently, especially those in the early-stage startup phase.

Governance Changes

Private equity firms typically play an active role in managing companies, bringing structure and discipline to their operations. They often help build strong management teams, set clear performance goals, and establish reliable reporting systems to maintain transparency and accountability. This structured approach enables the company to remain efficient, adapt to change, and make informed decisions that support long-term growth.Read More: Private Equity Funds Explained: From Fundraising to Exit Plans

Why Should Companies Choose Private Equity?

After knowing how private equity helps companies grow in various ways, it’s natural for businesses to consider partnering with private equity firms. Private equity offers unique advantages that extend beyond funding, enabling companies to achieve lasting growth and success through various operational support services. It helps underperforming businesses improve their performance and regain market position with experienced hands-on management. Companies backed by private equity firms can access larger professional networks, broaden their strategic perspectives, and attract higher-quality talent. Private equity also reduces pressure on companies by keeping them privately held, eliminating the need to go public, and allowing them to focus more on improving their operations. Additionally, a private equity partnership can provide meaningful liquidity for business owners while enabling them to retain some control over their business.Read More: Exit Strategy: Planning for Your Business

Phintraco Natha Kapital: Investing in Your Potential, Driving Your Success

Phintraco Natha Kapital is your trusted investment firm, combining the strength of capital with strategic advisory support to help your business scale further. With a diverse investment portfolio spanning ICT, property, manufacturing, and education, we bring deep expertise and innovative solutions tailored to each sector. More than just investors, we act as long-term partners, leveraging our strong industry connections and the reputable backing of the Phintraco Group to open doors to valuable opportunities. Whether supporting technology-driven ventures or established businesses ready to accelerate growth, our focus remains on empowering founders and building sustainable success.Partner now with Phintraco Natha Kapital to turn ambitious ideas into reality. Interested in partnering with us? Click “Apply” to get started.Editor: Trie Ayu Feminin & Irnadia Fardila