The fundamentals of choosing a Private Equity investor

The fundamentals of choosing a Private Equity investorRecognized as a Global Leader for Tomorrow by the World Economic Forum, bestselling author Ashutosh Garg worked in the corporate sector for 25 years before the entrepreneurial bug bit him and he founded Guardian, India’s fastest growing chain of health, wellness and beauty stores.

Below, he outlines five issues to pay attention to when planning to raise money from a Private Equity (PE) investor to expand your business.

1. What do they bring to the table (aside from money)?
It is very important to select a PE player who brings more than simply money to the table. PE players specialize in industries, and you should expect them to introduce you to other players in your field as well as in circles that may influence your business.

2. Do your own due diligence
Learn about your PE’s background and the investments they have made. If possible, talk to one of their investee companies and gain a counterpart’s perspective on the person you are considering giving a piece of your business to.

3. Study the term sheet terms carefully
Most promoters do not read the fine print of the term sheet – it is only later when the conditions are implemented that the entrepreneur realizes what he has signed up for, and by then it is too late.

4. Use a lawyer you trust to get your agreements done
Find a lawyer who can guide you through the maze of the legalese in all the agreements. Understand how multiple agreements link together as well as all the terms you are signing up to including guaranteed IRR’s, tag along, drag along, QIPO and other similar conditions.

5. Grow your business at a manageable rate
Make sure you grow your business at a rate that does not stress the business or management team. If your PE player pushes you to grow faster than you believe you can, it is better to push back early rather than get caught in a difficult business situation.

(The author of this article is Deborah Stoll from Young Presidents’ Organization (YPO). Ashutosh Garg joined the Young Presidents’ Organization Delhi Chapter in 1994. This article is brought to you by YPO’s Deal Network, a global business network, which brings together more than 6,600 members for education and deal support/transacting)

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