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A private equity company is an investment firm that raises funds from investors to purchase stakes in companies and aid them expand. This is different from individual investors who buy shares in publicly traded companies, which allows them to receive dividends, but has no direct impact on the business’s decision-making or operations. Private equity firms invest in a set of companies, referred to as a portfolio, and usually attempt to take over the management of these businesses.

They usually purchase the company with room for improvement, and then implement changes to improve efficiency, lower expenses, and expand the company. In some cases private equity firms employ borrowing to buy and take over a company which is referred to as leveraged buyout. They then sell the company for a profit and receive management fees from businesses in their portfolio.

This cycle of buying, selling and re-building can be a long process for smaller businesses. Many are looking for alternative funding methods that permit them to access working capital without the added burden of a PE company’s management fees.

Private equity firms have fought against stereotypes portraying them as strippers, by highlighting their management expertise and the success of transformations of portfolio companies. Critics, including U.S. Senator Elizabeth Warren, argue that private equity’s focus on generating quick profits destroys long-term value and is detrimental to workers.