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A private equity company is an investment company that raises funds to help companies grow by purchasing stakes. This differs from individual investors who buy stock in publicly traded companies which pay dividends, but doesn’t give them direct influence over the company’s decisions and operations. Private equity companies invest in groups of companies known as portfolios and try to take over the management of these businesses.

They will often find a company that is in need of improvement and buy it, implementing adjustments to increase efficiency, reduce costs and allow the business to expand. Private equity firms may utilize debt to purchase and then take over a business, a process known as a leveraged purchase. They then sell the company at an profit and collect management fees from the companies in their portfolio.

This cycle of purchasing, enhancing and selling can be a time-consuming and costly for companies especially small ones. Many are looking for alternative funding methods that allow them to access working capital without the burden of the PE firm’s management fees.

Private equity firms have fought back against stereotypes portraying them as strippers of corporate assets, by highlighting their management expertise and examples of transformations that have been successful for their portfolio companies. However, critics, such as U.S. Senator Elizabeth Warren argues that private equity’s primary goal is quick profits, which undermines long-term value and hurts workers.