2. About private equity
What are PE funds? PE funds are characterized by the fact that the owners participate actively in the development of the portfolio companies through ongoing strategic development in close cooperation with management. PE funds are also called active ownership funds in Norway. PE funds specialize in different phases of a company’s life cycle, and their ownership usually extends over a longer, but time-limited, period.
Split between early phase and buyout. In this study, we operate with a rough classification of PE funds into two main groups: Early phase funds and buyout funds. Early phase funds cover both investments in start-ups that do not consist of much more than an entrepreneur’s idea for an innovative product, and small and medium sized enterprises that are already established in a market but have considerable potential for further expansion. Buyout funds specialize in more mature companies where the challenge is to revitalize the company through restructuring, but also expansion.
Four value-increasing ownership roles. The contribution of PE funds to economic development and growth can be linked to five different roles:
- Selection. PE funds contribute to economic development by choosing to supply capital to the companies with the largest potential.
- Fuel. The funds contribute to the companies’ development by supplying them with capital over time.
- Complementary resources: The PE funds also contribute with other resources and forms of expertise such as industry experience or networks that the company does not already have. Competence is transferred through active participation in board work and contact with the company’s management.
- Governance. The fund manager has an important governance role by setting clear targets and establishing good routines and systems with the management, so that owners, management and employees pull in the same direction.
- Exit. Expertise and network to identify the buyer who are able to add the most value to develop the company further, in addition to the execution of the exit strategy.