Private equity involves investing financial capital into companies that are not listed on a public stock exchange. The investment period is usually between five to seven years during which time the entrepreneur will work together with the private equity company to grow and enhance the value of the business.
The private equity company are shareholders in the business so they are represented on the board and are actively involved in supporting the management team of the businesses. This means they have a vested interest in making sure the business expands and achieves maximum profit.
Traditionally access to finance has been difficult for SMEs. Banks often refuse to provide loans to entrepreneurs due to the high risks and lack of collateral to offset risk against, and if they did offer to provide a loan, entrepreneurs would often struggle to pay back the loan due to the numerous challenges of growing a business in Africa.
Private equity is a great solution for entrepreneurs seeking growth capital because it provides the entrepeneur with financial capital but also management expertise to help utilise that capital to expand the business and create maximum returns. It is also more flexible as the investment can be structured a number of different ways (debt, equity or a combination) to ensure the best fit for the entrepreneur.