PE firms perform a number of roles in the investee company. They can be majorly classified as follows:
By Prince Kumar (pgp01030@iiml.ac.in)
· Source of Capital
The main role of PE firm in any investee organization is to provide capital which may not be available through other sources. They help to recapitalise the company for future expansions. They also provide access to new channels of funding. Many a times a PE company is ready to invest in a company if it is already backed by another PE firm. For example, Vriti Infocom raised $5 million in series-B funding led by JAFCO Asia along with a follow-on investment from existing backer Intel Capital.
· Strategic Support
Sometimes PE firm regard itself more as a strategic investor rather than a PE or a VC investor. In this role, the PE firm generally provides strategic inputs for growth and helps the company access new markets. It may also help the company in building a global outlook. They help find new acquisition targets or strategic partners for future expansion. A big company might invest in a smaller company which makes similar products or in a smaller company which will eventually become a client of the big company. This arrangement is beneficial for the smaller company as it allows the company to remain autonomous and in turn attract other investors. Larger companies also benefit because they carry less risk than an acquisition.For example, Intel Capital regards itself as a strategic investor and generally invests in technology related companies.
· Operational Management
PE firms may also invest in a company to improve upon the management process and controls and thus better the efficiency of the company. They help the company to inculcate better corporate governance practices and new ways of management reporting.
· Brand Building
Backing by a reputed PE firm helps in improving the quality perception of the company. This will help them in furthering their business prospects and help the company in acquiring new clients. It will also help the company to develop a network of contacts which can be utilized when need arises. A better brand will also help the company in attracting talent at senior management level as well as the entry levels.
