How and why private equity funding works Private equity is an alternative way to raise capital, allowing privately owned companies to sell equity or shares without a public listing. Private equity firms, managing funds from a pool of investors, aim to achieve high returns for the company by improving cash flow and margins, rapidly transforming a business.
This capital raising strategy suits businesses looking to transform, grow into new markets or acquire other companies to expand operations. Many private equity firms buy to sell, injecting their expertise and unique industry experience to create better revenue and profits. The pressure to perform will remain high, so keep this in mind when selecting a best-fit capital-raising strategy.
The key to the success of private equity fundraising is proper preparation — so before you start, understanding each step in the process is key. This guide breaks private equity capital raising into eight actionable steps to keep your capital raise team on track throughout the process.
Private equity capital raise process in 8 steps
Generally speaking, the private equity capital raising process can be split into three stages:- Pre-offering (before approaching investors)
- Offering (liaising with investors)
- Closing (securing partnership with investors)
However, across those three stages, there are 8 important steps to a successful capital raise. Follow the below step-by-step guide to secure the right investor partnership.
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Stage one: pre-offering
Step 1: Define funding strategy and Ts&Cs
So, what deal are you looking for? What are you hoping to walk away with? What percentage of your business are you willing to part with in return for capital? Are you looking for mentorship or purely funds? The first step in the capital raise process is deciding exactly what success looks like for you.If you have a clear plan in mind for the funds you want to secure, you’re more likely to secure investment, plus execution then becomes as easy as simply following your plan.
Step 2: Prepare business detail
Your business cannot exist in your head when you present to investors. Now is the time (if you haven’t already) to research, document and project (accurately) your numbers (users/customers, revenue, expenditure etc).Take steps to maximize your valuation — if time permits, this is a great opportunity to audit and adjust supply chain and operations to optimize for values like sustainability that can impress investors and impact the bottom line.
Investors will want to know about the market potential, your business model, your marketing strategy, budgets and so much more. Make sure you have this information at your fingertips.
This capital raise checklist can help you prepare. This digitized template contains all the critical data points that ensure a company is healthy and prepared for investment.
Step 3: Find investors
Do your research. Which private equity investors are active in your space? Scour your network of contacts for a connection that might be able to give you a warm introduction. Contact top-tier business schools to see whether they can point you in the right direction.Create a profile on AngelList and apply to MicroVentures. Believe it or not, finding investors is not the hardest part about securing funding. However, if you’re struggling, you might consider appointing a financial advisor.
Step 4: Create your pitch presentation
You’re going to want to make investors an offer they can’t refuse, and that requires an immaculately prepared presentation. Of course, your most compelling business detail will feature here, but it’s also worth noting that investors love a story.Pitch to your friends. Pitch to your colleagues. Pitch to friendly business contacts to get their views. Not only will the practice “make perfect” but it’ll also give you a chance to get other people’s insights and incorporate them as you see fit.
Stage two: offering
Step 5: Organize meetings
The private equity capital raising process can be a numbers game in more ways than one. Make sure you schedule plenty of meetings to give yourself a good chance of landing at least one.
This part of the capital raise process is often called the “presentation roadshow”. Remember, if you’re approaching venture capitalists, your business needs to be established in some way – a good story will only get you so far.
Step 6: Facilitate the due diligence process
The work isn’t done just because the pitch is over. Once you’ve wowed investors with your presentation, it’s time to follow through with some impressive evidence. Interested investors will want to do due diligence, so having everything already prepared for them in a virtual data room is a huge plus (more on this below).Stage three: Closing
Step 7: Negotiate partnership agreement
You’re so close now, you can almost smell the success. Remember, when drawing up the partnership agreement, it must work for you, your investor, and the overall business. Many startup owners don’t protect their own interests well enough. Plan for the long term and use a good lawyer to ensure the detail is considered.Step 8: Sign and celebrate!
You’ve done it. Congratulations! Your patience and hard work have paid off – now you can put your plan into action and show the investor that your business is the success you know it can be.Tips for securing private equity funding
Capital raising is only becoming more competitive as raising debt becomes more challenging — so how can you gain an edge and set your business apart?Preparation is key, so do your due diligence internally. Researching potential investors can give you an advantage and avoid wasting valuable time chasing down an unsuitable private equity investor.
These four tips can help you target investors who fit your company best:
1. Understand investors' sector experience
Private equity and venture capital firms increasingly have niche sector experience, so ensure that your investor shortlist focuses on those with expertise in your field.2. Meet face-to-face
Nothing beats in-person communication. Building a personal relationship during fundraising helps to identify if the ongoing partnership will be sustainable and if the investor is a good fit to hold a stake in your company.3. Research the preferred transaction size
Investors tend to have a preference for transaction size. Before shortlisting, identify how much capital you aim to raise and research the average transaction size of potential investors to more effectively target your capital-raising efforts.4. Consider using an advisor or mentor
Personal relationships and professional experience can go a long way towards a successful capital raise, so having someone in your corner with cap raise experience can help to give you confidence and avoid common pitfalls.How do companies prepare for a successful capital raise?
The capital raise process is all about preparation. Investors may be wealthy but they’re time-poor. They want all the material information laid out for them so they can make a swift, informed decision.Since 47% of deals fall through due to issues that arise during the due diligence process, it’s imperative that you dot the i’s and cross the t’s well before you jump into asking for funds.
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Get started for freeQuestions about raising private equity capital
Is crowdfunding private equity?
Crowdfunding is another type of private equity financing, where a group of people pool funds to invest in a business. While crowdfunding often benefits contributors with access to a service or product produced by the company, private equity crowdfunding is the sale of securities like convertible notes, revenue shares or debt. The investment may be as little as $50 to $100.
What is private equity fundraising?
Private equity fundraising describes the capital raise process between a private company and private equity firms that buy shares in companies on behalf of institutional and accredited investors.
What is the fundraising trend in private equity for 2025?
The private equity fundraising environment is increasingly competitive, with a focus on existing relationships and a demand for fundraising professionals increasing. Limited partners are predicted to focus on sectors like Tech, Software, Healthcare and niche or specialist funds. Biotech and Medtech are gaining prominence among certain LP types.
General partners must differentiate to succeed in this competitive capital-raising landscape through targeted value-creation strategies and deep domain expertise.