Private Equity (PE)
Investment firms that buy established companies, often using debt, to improve and resell them.
Definition
Private equity firms invest in mature companies, often acquiring controlling stakes using a combination of equity and debt (leveraged buyouts). Unlike VCs, PE firms typically invest in profitable or near-profitable companies and focus on operational improvements, cost reduction, and financial engineering to increase value. Some PE firms have growth equity arms that invest in later-stage startups, bridging the gap between VC and traditional PE.
Why it matters
If a PE firm acquires or invests in your company, expect a focus on profitability and cost efficiency. PE ownership often brings layoffs, process optimization, and tighter financial controls. Your equity may be restructured as part of the transaction.
Example
A PE firm acquires a mature SaaS company for $500M using $200M of equity and $300M of debt. Over 5 years, they cut costs by 20%, grow revenue 50%, and sell for $900M. After repaying $300M in debt, the equity returns 3x.