A private equity company is an investment firm that invests in helping companies grow by purchasing stakes. This differs from individual investors who purchase shares in publicly traded companies. This can be a source of dividends but has no direct effect on the business’s decision-making or operations. Private equity firms invest in a set of companies, also known as a portfolio. They typically look to take over management of those businesses.

They typically identify a company with room for improvement and buy it, implementing changes to improve efficiency, cut costs and allow the business to grow. Private equity firms might make use of debt to buy and take over a company in a process referred to as leveraged purchases. They then sell the business for a profit and receive management fees from businesses in their portfolio.

This cycle of buying, selling and upgrading can be very time-consuming for smaller businesses. Many are looking for alternative financing methods that allow them to access working capital without the added burden of the PE firm’s management fees.

Private equity firms have fought against stereotypes of information technology by board room discussion them being strippers, highlighting their management skills and the successful transformations of portfolio companies. However, critics, such as U.S. Senator Elizabeth Warren argues that private equity’s goal is to make quick profits, which destroys long-term goals and damages workers.