Private equity firms are an investment company that seeks money from investors to buy stakes in companies and assist them to grow. This differs from individual investors who purchase stock in publicly traded companies. This gives them the right to dividends, but has no direct impact on the company’s decision-making and operations. Private equity firms invest in a collection of companies, called a portfolio, and usually look to take over management of those businesses.

They will often find a company that is in need of improvement and buy it, making changes to improve efficiency, cut expenses and help the business expand. Private equity firms could utilize debt to purchase and take over a business this is referred to as leveraged purchases. They then sell the company at a profit and collect management fees from the businesses in their portfolio.

This cycle of selling, buying, and improving can be time-consuming for smaller businesses. Many are looking for alternative funding methods that allow them to access working capital without the added burden of a PE firm’s management costs.

Private equity firms have fought against stereotypes that portray them as thieves of corporate assets, stressing their management skills and demonstrating examples of transformations that have been successful for their portfolio companies. Critics, including U.S. Senator Elizabeth Warren argues that private equity’s goal is to make quick profits, which destroys long-term goals and damages workers.