A private equity company is an investment firm which raises money to help companies grow by purchasing stakes. This is different from individual investors who invest in publicly traded companies which pay dividends, but does not grant them any direct control over the company’s operations or decisions. Private equity companies invest in groups of companies, referred to as portfolios, and try to take over the management of these businesses.

They typically purchase an organization that has potential for improvement. They then implement changes to improve efficiency, cut costs, and expand the business. Private equity firms might utilize debt to purchase and then take over a business this is referred to as leveraged purchases. They then sell the company at profit and receive management fees from the companies that are part of their portfolio.

This cycle of buying, selling and re-building can be a long process for smaller businesses. Many companies are searching for alternative ways to fund their business that give them access to working capital without having the management fees of a PE firm added.

Private equity firms have fought against stereotypes portraying them as corporate strippers assets, highlighting their management expertise and examples of successful transformations of their portfolio businesses. But critics, like U.S. Senator Elizabeth Warren, argue that private equity’s focus on making rapid profits damages working with partech international ventures the long-term value and hurts workers.