With the right skills and resources, starting a private equity firm could turn out to be a very lucrative and rewarding proposition. The rapid rise in the value of private equity acquisitions in recent years and the resounding success of investors’ return on investment has driven the growth of these firms. The growth continues unabated, in spite of recent tightening of regulations and increasing interest rates. In order to understand how to set up a private equity firm, here is an outline of the actions required.
Choose a business strategy- The first step is to determine what the focus of your firm will be, to differentiate you from competitors. It can be something you are passionate about, like alternative energy, start-up industries, or alternative modes of transportation.
Determine the scope and scale for the firm– whether it should be global, regional, or local. Determine a timeline for operation- commonly about ten years for most PE forms. What should be the criteria for acquiring and selling businesses?
Formulate a business plan, just like any other business. It should include the above, plus strategies for raising capital, acquisition and selling guidelines, and level of involvement in acquired companies.
Set up a legal team, to guide you through legal and regulatory requirements, mandatory filings, fees, and other issues such as who you can raise capital from (only accredited investors and institutional investors), how to advertise, and cross-border regulations. Once the firm is operational, the legal team will help with periodic filings, maintaining regulatory compliance, and manage any legal issues that may arise. It will play a major role in acquisition of new businesses, and selling them.
Set up back office operations, documentation procedures, a strong logo that represents your firm’s objectives and focus, as well as a clear mission statement. Set up a leadership team and a clear chain of command.
Raise Capital The most challenging aspect of the process is fundraising, convincing potential investors why they should trust your firm to add value to their investments, and why you are better than the competition. This is where having a strong track record of financial performance, and a solid reputation for transforming under-performing businesses plays a major role.
Cybersecurity Private Equity firms are increasingly opting for cloud based solutions to take advantage of the flexibility, ease of operations and data access offered by them. Unfortunately, this has also coincided with a rise in cybercrimes. A vital part of how to set up a private equity firm is to partner with an IT security firm like Agio. Your firm can take advantage of cloud based operations and navigate the highly complex world of setting up those operations, leveraging Agio’s expertise, while protecting your data, assets, and corporate interests.
In spite of the high barriers to entry, the rewards are virtually limitless.