Does VC and PE take minority stake in the company or the opposite?

Does VC and PE take minority stake in the company or the opposite?


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Green Entrepreneur:

Does VC and PE take minority stake in the company or the opposite? 

Kok-Leong TOH (PE Investor & Mentor of Green Impact Lab) :​

This depends on the type of financing that you are looking for.

For early stage companies, the ideal investor would be angel investors or venture capital. For them, they typically take minority or convertible bond with the ability to convert into minority stake in the company. Their focus is to support the right management team with the right product/solution and business model. They would provide guidance, network and branding to the company but would not get themselves overly involved in the day-to-day operation. They would typically take a seat at the board but typically for early stage companies, most of the decisions are taken outside of the board level in order to ensure the company is agile enough to react to the fast changing market dynamics.

For mid stage companies, the ideal investor would be growth-oriented private equity funds. For them, they would take minority stake in the company. Their focus is the same as the above but more towards ensuring the business has the right business model to grow and expand. They would typically take a seat at the board and drive the business through strategic decisions taken by the board. For such companies, key decisions on strategy and ‘company DNA’ will need to be approved by the board.

For mature companies that are not suitable for public listing, the ideal investor would be private equity funds. For them, they would prefer majority stake in the company. Their focus is to actively manage the company through incentive-based approach in order to maximize the revenue potential and reduce cost. In another word, private equity funds will seek to make the company more lean and efficient. The founder in such situations will have a relatively lesser role in the business.

It is not black or white in most instances and ultimately depends on the meeting of minds between the founder/management and the investors.

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