What is Private Equity? | Mint Masterclass

Many promoters complain about Private Equity’s behavior in their companies post-investment.

I’ve heard many promoters complaining about peace behavior in their company’s post investment every promoter wants money after they exhaust all available resources either for growth or to turn around but there is no free lunch and investors are not going to just hand in some high risk money and pray to god that they get some disproportionate returns please get

Their money from investors and have a responsibility invest sensibly manage the investment and return the money with profits so in this video let’s get some understanding if you are ready for a private equity but before that let’s understand what is privately private equity is an alternative mode of private financing basically a group of investors pull in their

Money into a fund which needs to be approved by sebi under the category of alternative investment funds ultimately you need to understand that if the business does well it increases the value for all the stakeholders you may think that you know the business well and i’ve been running it for a long time but don’t underestimate the knowledge that come from the peace

Good pe firms add real value i’ve heard promoters saying that their future business value is great and hence want higher valuation and don’t want to dilute too much without realizing their dire need for liquidity we have seen many legal tuzzles between the promoters and pe funds mostly they are about how companies are not honoring their obligation not transparent

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While companies blame private equity funds for putting undue pressure for higher returns and all you may remember lilliput kids wear they had two foreign pe investors bain and tpg who had invested 86 million dollars just two weeks after they got approval for ipo in september 11 the p is got an anonymous call that the revenues of the company have been highly inflated

This call set off a chain of events that their investment got wiped out a forensic or it was conducted but its founder sanjay narula did not cooperate instead what did he do incited workers protest threatening text messages etc end of story for the company and the investors like this so many stories that are better not all pe are angels some of them put unreasonable

Clauses in their investment agreement and some even do micromanaging which could trigger a series of unpleasant situations so what’s the lesson for the promoters understand your specific needs be reasonable in valuation expectation be ready for a strategy and management change be realistic with your business projection be prepared to share information transparently

Don’t agree for unreasonable terms and don’t get bullied build resources to buy back in a nutshell promoters and their companies must keep these points in mind and be ready before seeking private equity capital obviously they will carry your due diligence not just on the company but even on the personal front of the promoters so be ready if you are overweight and

Have comorbidities don’t be surprised if they ask you to go on a diet and exercise regime they will push you to give aggressive business plans evaluate your way of running the business suggest changes in the business model key management personal accounting policies and so on famous finance journalist matt kaibi said private equity firms are not necessarily evil

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By definition there are many stories of successful turnarounds fueled by private equity often involving multiple flandering businesses that are rolled into a single entity eliminating duplicative overhead

Transcribed from video
What is Private Equity? | Mint Masterclass By Mint