BANKING
By contrast , private equity is focused towards more mature businesses that have already enjoyed some success and growth . They may be businesses that are enduring some sort of financial difficulty that requires an activist investor or potential restructuring . PE firms tend to take a larger stake , and may take over a public company with a view to delisting it .
“ The private equity stage is akin to moving from grammar school to college ,” says John Clark , Managing Director at Royal Park Partners . “ At this point , the company has demonstrated product market fit – congratulations ! The investors at the next stage of a company ’ s evolution are likely coming out of Harvard Business School or McKinsey , so expect laser focus on the nuts and bolts of the business , such as metrics on customer acquisition cost ( CAC ), lifetime value ( LTV ), total addressable market ( TAM ), cash flow , profitability at a unit economic level and competitive landscape .
“ THE PRIVATE EQUITY STAGE IS AKIN TO MOVING FROM GRAMMAR SCHOOL TO COLLEGE ”
JOHN CLARK MANAGING DIRECTOR , ROYAL PARK PARTNERS
“ This group of investors isn ’ t looking for 10-times cash returns , but a more modest three-to-five times . They are therefore keen to convince you the valuation today is too high and cannot make any money unless they add structure to a deal ( downside protection ). The rationale is they make fewer but more concentrated investments and look to have a board seat and / or an observer seat as well .
“ At this stage , the thinking is ‘ how do we get you from US $ 10mn of revenues to US $ 40mn or US $ 50mn in three-tofive years ?’ It becomes a tactical and strategy-driven process , focused on professionalising the organisation . This tends to be the biggest shock to founders as they transition from VC to growth / PE investors .”
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