How to attract Micro Private Equity investment

You might think that private equity investment is only for big corporate entities. But think again…

Micro private equity (Micro PE), or small-scale private equity (SSPE), is available for small and medium-sized businesses – but the rigorous investment criteria can be a challenge.

Of the 35% of growth economy businesses who sought external equity in the past three years, 53% were unsuccessful, according to research by the Australia Business Growth Fund.

And of the 47% that managed to access some form of equity capital, almost all of it (90%) came from family and friends, not institutional investors who typically bring a lot of support and capability to accompany their capital.

Let’s look at what Micro PE is, the key benefits and how you can attract Micro PE investment.What is Micro PE?

Micro PE involves investment funds or groups acquiring stakes in small, established and (crucially) profitable businesses. 

Typically these businesses will be valued at under $5 million, with the Micro PE investors aiming to grow the company and eventually sell it on for a good return on their original investment. 

SMEs are often overlooked by larger PE firms and venture capitalists, so Micro PE offers a way to fund the growth of your small business, but with the usual constraints of PE investment.

Why consider Micro PE over other more traditional debt-based SME funding channels?

Here are the main benefits of going the Micro PE route:

Bear in mind that taking on Micro PE will mean handing over some control of the business to your new investors. It’s important to be aware of this and to factor it into your strategy. How to appeal to Micro PE investors

The key hurdle to Micro PE investment is passing the stringent checks that investors will require from your business. A low level of risk and clear evidence of positive future business performance are critical – but this can be hard to demonstrate for some SMEs.

Make sure you’ve got a compelling, data-backed growth strategy. Show how an injection of additional capital would help you accelerate your market share, product development or expansion. And create a plan for scaling the business and delivering an excellent return.

Impeccable, audited financial records are essential. Run the latest in cloud accounting and make sure the business has the best possible internal controls and governance structures in place to keep the company on track. This shows maturity and builds investor confidence.

Underline the experience of your management team and their understanding of your market. Investors will back people and experience as much as ideas, so do everything possible to demonstrate your leadership skills. A clear exit strategy and succession plan are also crucial.

Clearly define your target market and unique selling point (USP). Outline your competitive advantages (e.g., intellectual property, strong customer loyalty, operational efficiency) that protect the company’s future earnings and justify higher valuations.

While it’s not an immediate outcome, PE firms invest to eventually exit at a profit. Outline plausible exit scenarios (e.g., trade sale, management buyout, IPO) and a timeline, showing how their investment can yield a potential return.

If your small business has huge growth ambitions, but lacks the necessary funds to scale, Micro PE is one route to additional capital and a guiding hand on the future course of the business.