How does private capital work?

How does private capital work?

Basic Knowledge

How does private capital work?

Private capital firms invest in businesses with a goal of increasing their value over time.

Private capital investment firms use capital raised from a variety of sources, including institutional investors such as superannuation and pension funds, and Family Offices, and generally invest these funds in promising private companies over a period of around five to seven years. Sometimes this is referred to as ‘patient capital’.

Different types of private capital firms invest in businesses at varying stages of their development and life cycle:

  • Venture Capital firms: specialise in supporting businesses in their start-up or early growth phase.
  • Growth private equity firms: specialise in supporting businesses that are in a major growth or expansion phase.
  • Turnaround private equity firms: these firms help businesses that are underperforming or in financial difficulty and play a valuable role in reviving the operations and re-positioning the businesses for future growth.
  • Buyout private equity firms: invest in larger corporations who may be divesting non-core business units, or seeking to take a publicly-listed corporation back into private ownership.
  • Private credit firms: Assist with accessing debt funding to help the business invest in growth for the long-term.

After several years, private capital firms will usually look to divest all or some of their interest in the business in order to provide capital and returns back to the investors in the fund. 

Divestments generally occur through disposal of equity or other interests in the business via trade sale, secondary-market sale, share market listing, or a sale to management of the business. In the case of private credit, divestment will generally involve repayment of debt facilities or some other form of liquidity event.

Who are the key players?

The Australian Investment Council’s member firms comprise institutional investors, private capital investment firms, as well as leading corporate and strategic advisors.

The benefits of investment into your business from private capital firms

One of the key differences in the investment strategy of private capital firms is that the investment is typically accompanied by strategic support to help the business grow, expand and become more profitable in a sustainable and measurable way. Often, this means that private capital investors – as major shareholders – will become involved in supporting the business through appointing one or more representatives to the Board of Directors to assist the management team with developing and executing the businesses’ strategy.

  • Long-term injection of capital.
  • Support from a business partner that shares their skill, expertise, risk and rewards.
  • A strong capital base for future growth, with additional funding available if required.
  • Business mentorship and strong governance on strategic, operational and financial matters.
  • Access to the investor’s alliances and networks to assist with key business priorities such as talent management and recruitment, accessing international markets, and introductions to strategic partners.
  • Developing a capital structure strategy that is best suited to the business, including long-term investment and divestment plans.

One of the key benefits of working with private capital firms is that they provide your business with strategic support to help your business grow, expand and become more profitable.

The information in this article has been compiled by the Australian Investment Council from sources we believe are reliable and all content is subject to their terms (found on their website at https://www.avcal.com.au/) and all applicable laws. The Australian Investment Council Limited makes no representations or warranties of any kind, express or implied as to accuracy of the content, information, materials or products included on this site, except as otherwise provided under applicable laws. Neither Australian Investment Council Limited, nor its affiliates, directors, officers, employees, agents, contractors, successors or assigns will be liable for any damages whatsoever arising out of, or in any way related to, the use of this site and any other site linked to this site. This limitation applies to direct, indirect, consequential, special, punitive or other damages you or others may suffer, as well as damages for loss of profits, business interruption or the loss of data or information.
The information in this article has been compiled from sources we believe are reliable. Reach Alternative Investments makes no warranty, express or implied, regarding accuracy, adequacy or the completeness of the information. We provide this information on an ‘as is’ basis. This disclaimer applies to isolated and aggregate uses of the information. Information can also become out of date fairly quickly. If you have obtained this information from a source, other than from Reach Alternative Investments, please consider it carefully as electronic data can be altered subsequent to original distribution. Please contact us immediately if you think that may be the case. Neither Reach Alternative Investments, nor its affiliates, directors, officers, employees, agents, contractors, successors or assigns will be liable for any damages whatsoever arising out of, or in any way related to, the use of this site and any other site linked to this site. This limitation applies to direct, indirect, consequential, special, punitive or other damages you or others may suffer, as well as damages for loss of profits, business interruption or the loss of data or information.
Always remember that all investments carry risk. You may lose or gain money. Past performance is also not indicative of future performance. Before making a financial decision, you should read the relevant Information Memorandum.

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