The private equity funds have existed for several decades in the finance word in a variety of versions. In theory, their horizon to achieve a return on investment (usually between 4 and 7 years) is at odds with the vision of a family business, whose horizon extends indefinitely for several generations. However, for certain funds and family businesses, the investment strategy of Private Equity fits perfectly with the need for a family business’ suitable financial assistance.
What makes a couple, in principle an odd one, have the opportunity to meet and have a good relationship? As in real life, many circumstances of mutual benefit. It is then appropriate to identify the type of Private Equity that may have a better fit with family businesses as an investment partner. Of the variety of investment funds that exist in the financial spectrum, such as leveraged buyouts, mezzanine capital, venture capital or others, the most suitable is the ‘growth capital’.
This type of Private Equity specializes in investments, generally at minority stake, that are made in mature and successful companies that are in a transformative process of economic expansion – restructuring, opening of new markets or acquisitions – but that have used-up their traditional funding lines . Many of these companies in a country like Colombia and also in other countries in Latin America, are precisely the aforementioned family businesses.
It is known that, within the main characteristics of a family business, there are two that stand out consistently over time: first, they want to remain exclusively within the family, from generation to generation, as an untouchable legacy. The second characteristic is the unwillingness to contract debt to finance economic growth or capitalize on business opportunities. Both conditions can be relaxed over time.