Insights

The Top 3 Things Private Equity Firms Look For When You Apply For Funding

Monday 8 November 2021

Before seeking growth funding from a private equity firm entrepreneurs need to consider their level of passion, ambition, and how they intend to grow their business.

At EHE Capital, we’re excited to help them find the right funding partners, so I was keen to share the expertise of Richard Whitwell of LDC (Lloyds Development Capital [Holdings] Limited), the largest mid-market private equity house in the UK.

You can hear my full conversation with Richard on the EHE podcast “Extraordinary Entrepreneurs Together.

Richard looks after the Midlands team which accounts for about half of the 90 or so businesses that LDC has in its portfolio at any one time.

Often entrepreneurs assume that when they approach a private equity firm, the numbers are the most important thing, so it’s reassuring to hear that they aren’t even in the top three considerations.

 

Back the jockey

Richard: “At LDC, what we want to see from any entrepreneur is passion, ambition and a well-thought-out growth plan. By being able to clearly articulate plans for growth they’re already showing they have ideas on how it will be delivered.

We do, of course, look at the numbers in time, but in horse racing parlance we back the jockey, not the horse. The key for us is knowing that we are backing the right management team. We’ve supported more than 650 companies over the past 40 years, and we know that a good management team will keep business on the straight and narrow when things get tough.”

It’s clear that LDC likes to back passionate, ambitious, growth-focused entrepreneurs and, to an extent, that is more important than the numbers themselves. Another major concern for tech entrepreneurs is whether accepting funding means they lose control of their own business. Richard explained that this is not the case at LDC.

Richard: “The likes of LDC can be very helpful in unlocking new routes to growth, and  sharing ideas on how to develop and expand, but it’s important to say that we see ourselves as partners. The entrepreneur can grow their business with our help but without losing passion or control around how it is run; they know the most about their industry and they are the best person to run it.”

Since the traits shown by the entrepreneur are a major consideration, I wanted to know if they made any common mistakes when seeking growth capital.

 

Rigid planning

Richard: “They need to recognise that things don’t always go swimmingly. We need to see that they have considered the risks involved (for example, regulatory or market risk, customer dependency or key supply depot issues) and have a plan B. We want to see how they would deal with certain scenarios if things went against them. Passionate entrepreneurs will find a way rather than stall or become completely stuck.”

As a business leader, I have been guilty of choosing to only see the positive results, so it’s useful for entrepreneurs to recognise that they need to strike a balance between being focused on plan A (perfection), and acknowledging they may need a plan B (if they get into difficulty). As Richard went on to explain, it’s also important for the dynamic between entrepreneur and investor to be “right”.

Richard: “The chemistry between an entrepreneur or a management team and their potential investor is important. If it’s a longer-term investment you want to be able to fully engage and have a great rapport when you sit down round the board table.”

In my experience, the chemistry is either there or it isn’t from the start. You will know pretty quickly if the partnership is a good fit.

I hope this article has provided useful insights on how a private equity firm such as LDC could help fund your business growth, and what you need to do differently when approaching them instead of a bank (where it is likely to be more about the numbers).

If you’d welcome further support and would like to find out more about how EHE Capital can help you source funding and build the right mindset for business success, please email me at gary@ehe.capital.

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