Learn how private equity entrepreneurship differs in focus, capital, and strategy from other business ventures in our informative guide.

Private Equity focuses on acquiring and improving existing businesses. The goal is to increase the value of the business in order to sell it and get profit. It is something buying at low and selling at high. Whereas, other businesses focuses on building a new business idea from the ground up. The founder is directly involved in the day-to-day operations and aims to create a sustainable, long-term venture. PE relies on funds raised from investors. These investors pool their money and the private equity firm uses it to acquire companies. PE professionals are involved in strategic decisions & operational improvements. They typically don't run the day-to-day operations of the acquired businesses. The end goal is to sell company for profit.

Private equity firms often bring a proven formula with it and execute that formula in their portfolio companies with professionalism. As they have experience across multiple investments and sectors they often know what works and what doesn't. Bringing an outside view might also help as entrepreneurs, although hard working visionaries, might suffer from tunnel vision.

Last updated on Jul 10, 2024

Here's how you can distinguish private equity entrepreneurship from other forms of entrepreneurship.

Understanding Private Equity Entrepreneurship can be a complex endeavor, especially when trying to differentiate it from other forms of entrepreneurship. Private equity (PE) refers to investment funds that acquire equity ownership in companies, typically aiming to improve their financial performance and increase their value over time. This form of entrepreneurship is distinct from others, such as venture capital or individual startup ventures, in several key ways. By delving into these differences, you'll gain a clearer picture of what sets private equity entrepreneurship apart.

Key takeaways from this article

Focus on optimization:

Private equity entrepreneurs excel by acquiring existing companies and boosting their value through strategic improvements. Apply this by identifying businesses with growth potential and implementing operational efficiencies to maximize returns.### *Leverage investor capital:Unlike other entrepreneurs, private equity relies on funds pooled from institutional investors and high-net-worth individuals. Use this approach to access substantial capital for significant investments, enhancing your ability to scale and improve businesses effectively.

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1 PE Basics

Private equity entrepreneurship revolves around investments made by private equity firms. These firms raise funds from institutional investors and high-net-worth individuals to take significant stakes in companies, often acquiring them outright. Unlike other entrepreneurs who might start a business from scratch, private equity entrepreneurs focus on optimizing existing businesses, implementing strategic improvements, and ultimately selling them for a profit.

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Kedar Kulkarni

Senior Manager, Wadhwani Foundation | Startup Growth Catalyst | Making Startups Funding-Ready
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Private Equity focuses on acquiring and improving existing businesses. The goal is to increase the value of the business in order to sell it and get profit. It is something buying at low and selling at high. Whereas, other businesses focuses on building a new business idea from the ground up. The founder is directly involved in the day-to-day operations and aims to create a sustainable, long-term venture. PE relies on funds raised from investors. These investors pool their money and the private equity firm uses it to acquire companies. PE professionals are involved in strategic decisions & operational improvements. They typically don't run the day-to-day operations of the acquired businesses. The end goal is to sell company for profit.

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Andrew Chavez

President | Aerospace & Defense Division | Simon Group Holdings
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To distinguish private equity (PE) entrepreneurship from other types, focus on PE basics. Unlike traditional entrepreneurs who start businesses from scratch, PE entrepreneurs invest in existing companies to boost their value and profits. They raise large amounts of money from investors to buy and improve these companies. The goal is to grow the business, make it more efficient, and sometimes cut costs, so they can sell it for a profit. Knowing these PE basics shows how PE entrepreneurship is different and unique.

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2 Capital Sources

The sources of capital for private equity entrepreneurs are markedly different from other types of entrepreneurs. Instead of relying on personal savings, loans, or venture capital, they pool large sums of money from limited partners (LPs), which include pension funds, endowments, and wealthy individuals. This capital is then used to make substantial investments in target companies.

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3 Investment Focus

Private equity entrepreneurs typically target established companies with proven business models, rather than startups or early-stage ventures. They look for entities that have potential for improvement or growth, which they can achieve through strategic management, operational efficiencies, or market expansion. This contrasts with other entrepreneurs who may focus on innovation or creating new markets.

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4 Value Creation

In private equity entrepreneurship, the primary goal is to create value within a relatively short time frame, usually between four to seven years. This involves making operational improvements, cutting costs, and driving revenue growth to increase the company's value before exiting via a sale or public offering. This approach is more systematic and financially driven than the often more organic growth strategies of other entrepreneurs.

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5 Exit Strategies

Exit strategies in private equity are crucial, as they are the moments when the investment's value is realized. Private equity entrepreneurs plan their exits meticulously, which can include selling the company to another firm, merging it with another entity, or taking it public through an initial public offering (IPO). This focus on exit is more pronounced than in other forms of entrepreneurship, where exits may not be as central to the business strategy.

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Christian Carlberg

Manager, Tax Recovery @ Ryan | Expertise in VAT & keen interest in tech innovation & private equity
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Even though an exit is always thought of when buying a company from a private equity investment perspective, the time horizon may differ greatly. Some firms might have a three year time horizon yet others might be longer-term in nature and hold an investment for ten years or more.

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6 Risk Profile

The risk profile of private equity entrepreneurship is unique because it involves buying and improving existing businesses with the intention to sell at a profit. While there is significant financial risk, private equity firms mitigate this through diversification across multiple investments and thorough due diligence. The risk-taking in private equity is often more calculated and measured compared to other entrepreneurial ventures that may operate in unproven or highly volatile markets.

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Christian Carlberg

Manager, Tax Recovery @ Ryan | Expertise in VAT & keen interest in tech innovation & private equity
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Private equity firms often bring a proven formula with it and execute that formula in their portfolio companies with professionalism. As they have experience across multiple investments and sectors they often know what works and what doesn't. Bringing an outside view might also help as entrepreneurs, although hard working visionaries, might suffer from tunnel vision.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Here's how you can distinguish private equity entrepreneurship from other forms of entrepreneurship.

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1 PE Basics

2 Capital Sources

3 Investment Focus

4 Value Creation

5 Exit Strategies

6 Risk Profile

7 Here’s what else to consider

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