Equity partner

What this seat actually does

Equity partners fund what debt cannot and share the risk. The categories behave very differently. Family offices often hold for long periods and care about stewardship. Institutional private equity operates to a fund life and therefore to an exit timetable. Independent sponsors find the deal first and raise the money afterward, which affects certainty of closing. Minority investors take a stake without control, which suits an owner who wants capital without a new boss.

What you are really choosing is a partner and a governance arrangement, not a source of funds. The terms that will matter in three years are the ones about control, board composition, what happens when you disagree, and how and when they get their money back.

When you need one

When the acquisition is larger than your balance sheet and prudent debt can carry, or when you want the capability and network a particular partner brings alongside the money.

How they charge

They take ownership, and the terms of that ownership are the whole negotiation. Look at governance rights, information rights, liquidity expectations and what happens on a disagreement, not just the valuation at entry.

What to ask before you hire

• What is your holding period, and what has to be true for you to exit?
• What governance rights do you require, and what decisions would I no longer make alone?
• For an independent sponsor: is the capital committed, and if not, who are you raising it from and what is your closing record?
• May I speak to two owners you backed, including one where things went badly?

How to compare candidates

• Reference the partner the way they will reference you. The call to a portfolio company that underperformed is the most informative hour you will spend.
• Match the holding period to your own intentions. A fund with three years left is not a long term partner regardless of what is said.
• Certainty of closing is a real differentiator, especially with sponsors who have not yet raised the money.

The mistake owners make

Choosing on headline valuation and discovering the governance terms afterward. The valuation is a number at one moment; the governance is what you live inside every day.

What this is not

Not a lender. Not a buyer of the whole company, unless that is what you have agreed.

The Institute accepts no payment from any advisor, takes no fee tied to any transaction, and does not place or refer professionals for compensation. This entry describes a role, not a recommendation of any firm.