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How to Setup a Private Equity Firm


India after been one of the top nation for start-ups and new business ventures, have open up its arms for Private Equity business. Private Equity Business refers to a pool of funds raised purposely for buying significant stakes or shares in companies or to invest into operation of entities.

What do you mean by private equity firm?

Private equity business is a business firm consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies. The capital that is raised from investors, can be used in number of ways like to invest in or to fund new technologies, expand working capital, to make acquisitions or to strengthen a balance sheet.

Why Start a Private Equity Firm?

Private equity firm provides an insight to the capital of the entities and performs various business plans to the business entities. Private equity firms mostly buy mature companies that are already established. The companies may be deteriorating or not making the profits they should be due to inefficiency. Private equity firms buy these companies and streamline operations to increase revenues.

Private equity funds come in different models from venture capital funds, which focus on investing in early-stage companies, to leveraged buyout funds, which focus on buying large, established businesses.

Services offered as a Private Equity Firm

Private equity in India manage the investments and portfolio of private companies. They research and analyse and help private companies strategize in the long run. Investing in a firm takes a lot of back end task and procedures. Private equity firm can provide ample number of services and can acts as a single window channel.

Here’s a list of services that private equity firms in India offer to private companies –

  • Fundraising and Setup:  Private Equity firms help private companies in sorting out the entire strategy of fund raising. They help the team to develop the fund investment strategy and guide them to pitch them up. Along with that they help companies with sector analysis and insights of the future prospects of the firm.
  • Tax & Regulatory Services: Private equity in India can only manage the funds when they have an entire grip on the tax and regulatory services. Under this service, they facilitate private companies in fund structuring, restructuring for optimizing the tax and helping in tax advisory and compliance. Indian Tax regime has been always the most important factor in inculcating the financial of the investment strategy. So, a Private Equity Firm can provide taxation services to their client.
  • Risk, Governance & Compliance:  Private equity firms, thus help companies in mitigating the risks, find out the best fit for the private companies and facilitate in articulating right portfolio management systems and procedures.
  • Corporate Finance: For growth, profitability and building competitive advantage, private equity in India can assist in deal orientation, project management, negotiation support, valuations, capital structuring, capital raising advisory, joint ventures and deal structuring.
  • Due Diligence: Due Diligence being one of the top priority for the clients. Private Equity Firm can provide the services of due diligence which can offer background check on the proposed company right from its incorporation and a thorough check of the directors.

Advantages of equity finance for businesses

Raising money for businesses through equity finance can have many benefits, including:

  • A Big Corpus of funds: The funding is committed to a business and its intended projects.
  • Management by Operation: Businesses does not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities.
  • Growth Prospects: Investors expect the business to deliver value, helping you explore and execute growth ideas.
  • Involvement: Private Equity can bring valuable skills, contacts and experience to your business. They can also assist with strategy and key decision making.
  • Success of the Business: Private Equity Firm have a vested interest in the business’ success, ie its growth, profitability and increase in value.

Disadvantages of equity finance for businesses

There are drawbacks of equity finance too:

  • High Cost, Time Consuming: Setting equity finance is demanding, costly and time consuming, and may take management focus away from the core business activities.
  • Competition: There are already big players in the industry who are providing the best of the services in the industry.
  • Loss of Control: Depending on the investor, private equity will lose a certain amount of your power to make management decisions.
  • Controlling Function: Management by private equity will have to invest management time to provide regular information for the investor to monitor.

We at Startup Scratch provides its business partners a an exposure to setup a private equity firm in India and provide them a thorough support in terms of legal compliance and financial setting for smooth conduct of the business.

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