When it comes to technology companies, venture capital typically refers to early-stage or growth-stage investments. In these cases, the investor subscribes to shares in a stock issuance. The company receives capital, and the investor gets a minority ownership. Where can larger and profitable companies find fuel and where can owners find wealth? You can sell your company entirely to an industrial buyer or to a private equity investor, either completely or as a majority stake.

After a successful auction process, you might find yourself needing to choose between a private equity investor and an industrial buyer. Selling to an industrial buyer and a private equity investor are two quite different things.

What can a private equity investor do for your company? Firstly, many buy 100% of your company. A private equity investor wants the active owners to reinvest a portion of the proceeds back into the company. This usually happens if the owner will continue to have a role in the company. The reason for reinvestment is the transaction structure and commitment. The buyer (in this case, the private equity investor and possibly other investors) establishes an acquisition company. This acquisition company takes on bank loans for the transaction in addition to the invested capital. By using debt leverage, the return on investment is improved as the company pays down the loan over the investment period. The best part about a private equity investor is that the transaction is done in cash – cash is king. There are no buyer shares, which carry risk and can be difficult to sell.

A private equity investor can sometimes buy out just the founder or other inactive owner. There can be several reasons for the sale. Cash remains the payment method. In exchange, the private equity investor typically wants a majority stake.

Sometimes, a company just needs new energy and capital. Your current tired founder or private equity investor can be replaced with a new, energetic one. Again, the payment method is cash.

A private equity investor can be a valuable source of funding for your company's growth. Private equity investors may also be interested in refinancing. Banks dislike risks, whereas private equity investors are willing to take them.

What else should you know? If things do not go according to plan, private equity investors may not necessarily want to support your business plan and the management team implementing it. The more challenging the situation your company is in, the more likely you are to face significant changes.

An industrial buyer is interested in the strategic value of your company. Such a buyer has a problem that your company can solve. A private equity investor, on the other hand, views everything through the lens of future return targets. Strategies are chosen accordingly.

A private equity investor emphasizes the business plan and may listen to your wishes for the future but can sometimes be ruthless when negotiating deal terms. An advisor can be an invaluable asset in achieving the best possible outcome and explaining the terms.

By Vesa Walldén