Private equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies.

Some commentators use the term “private equity” to refer only to the buy-out and buy-in investment sector. Others, in Europe but not the USA, use the term “venture capital” to cover all stages, i.e. synonymous with “private equity”. In the USA “venture capital” refers only to investments in early stage and expanding companies.

To avoid confusion, the term “private equity” is used throughout this Guide to describe the industry as a whole, encompassing both “venture capital” (the seed to expansion stages of investment) and management buy-outs and buy-ins.

How this Guide can help you

This Guide aims to encourage you to approach a source of private equity early in your search for finance. It explains how the private equity process works and what you need to do to improve your chances of raising it. It gives guidance on what should be included in your business plan, which is a vital tool in your search for funding. It also demonstrates the positive advantages that private equity will bring to your business.

The main sources of private equity in the UK are the private equity firms (who may invest at all stages – venture capital and buy-outs) and “business angels” (private individuals who provide smaller amounts of finance at an earlier stage than many private equity firms are able to invest). In this Guide we principally focus on private equity firms.

The attributes that both private equity firms and business angels look for in potential investee companies are often very similar and so this Guide should help entrepreneurs and their advisers looking for private equity from both these sources. “Corporate venturers” which are industrial or service companies that provide funds and/or a partnering relationship to fledgling companies and may operate in the same industry sector as your business can also provide equity capital.

Throughout the 1990s the technology hype, internet boom and massive capital investment propelled the New Economy revolution, but internet mania in the late 1990s caused technology stocks to skyrocket until the bubble burst in March 2000. There was over-optimism, too much easy money, proven ways of doing business were replaced by irrational exuberance and private and public company market valuations were driven to unsustainable levels.

Post bubble, in the current economic environment, private equity firms are looking for investment opportunities where the business has proven potential for realistic growth in an expanding market, backed up by a wellresearched and documented business plan and an experienced management team – ideally including
individuals who have started and run a successful business before. There is currently no shortage of funds for investment in the UK. Excellent opportunities remain open to companies seeking private equity with convincing business proposals. This Guide will help you to understand what private equity firms are looking for in a potential
business investment and how to approach them.

Download A Guide to Private Equity

PDF format, 416KB, 64Pages.

CONTENTS
The business plan 20
Essential areas to cover in your business plan 20
The presentation of your business plan 28
Things to avoid 29
The investment process 30
Reaching your audience 30
Confidentiality 30
How quickly should I receive a response? 30
How do private equity firms evaluate a business plan? 31
Presenting your business plan and negotiations 31
Valuing the business 31
Personal financial commitment 34
Types of financing structure 34
Classes of capital used by private equity firms 34
Other forms of finance provided in addition to equity 36
Additional points to be considered 36
The Offer Letter 37
The due diligence process 37
Syndication 38
Completion 38
Additional private equity definitions 38
The role of professional advisers 40
The financial adviser’s role 40
The accountant’s role 41
The lawyer’s role 42
Professional costs 43
Your relationship with your investor 45
Private equity for growth and success 45
Hands-on 45
Hands-off 46
Help to avoid the pitfalls 46
Directors’ responsibilities 47
Guidelines for success 47
Realising the investment 49
The options 49
Valuing the investment on exit 50
Before you do anything – read this! 51
Legal and regulatory issues you must comply with in raising finance 51
The Financial Services and Markets Act 51
Misleading statements 54
Appendix – further information 56
Contact details 56
BVCA publications and research 56
Other useful contacts 58

Private equity – investing in Britain’s future

• Each year UK private equity firms provide several billions of pounds to form, develop and reshape around 1,600 ambitious UK companies with high growth prospects.
• Private equity makes managers into owners, giving them the freedom, focus and finance to enable them to revitalise their companies and take them onto their next phase of growth.
• Private equity is committed, long-term and risk sharing. It provides companies with personal experience and a stable financial base on which to make strategic decisions.
• UK private equity firms offer a wide range of sources, types and styles of private equity to meet many different needs.
• A great variety of businesses in different industry sectors benefit from private equity; from high to low technology and in different development stages, from start-up to large established companies.

About BVCA
3 Clements Inn
London
WC2A 2AZ
T 020-7025 2950
F 020-7025 2951
E bvca@bvca.co.uk
W www.bvca.co.uk

Founded in 1983, the BVCA represents private equity and venture capital in the UK. We are devoted to promoting the private equity industry and improving the performance and professional standards of member firms
and the individual within those firms.

About PricewaterhouseCoopers LLP
1 Embankment Place, London
WC2N 6RH
T 020-7583 5000
F 020-7822 4652
W www.pwc.com/uk

This Guide was written for the BVCA by Keith Arundale, Director at PricewaterhouseCoopers LLP.
PricewaterhouseCoopers (www.pwc.com/uk) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.

Comments (0)

Name

Email

Comment

smaller | bigger

Add Comment