A private equity company is an investment firm that invests in helping companies grow by purchasing stakes. This differs from the individual investors who purchase stock in publicly traded companies. This entitles them to dividends however, it has no direct influence on the company’s decision-making and operations. Private equity firms invest in a set of companies, also known as a portfolio, and typically look to take over management of those businesses.

They will often find a company that could be improved and then purchase it, making changes to improve efficiency, reduce expenses and help the business expand. In certain instances private equity firms employ debt to purchase and take over a company also known as a leveraged buyout. They then sell the company for a profit and collect management fees from the companies in their portfolio.

This cycle of buying, selling and improving can be time-consuming for smaller businesses. Many companies are seeking alternative methods of financing that can give them access to working capital without the management fees of the PE firm added.

Private equity firms have fought back against stereotypes that portray them as strippers partech international ventures of corporate assets, and have emphasized their management skills and demonstrating examples of successful transformations of their portfolio companies. But critics, including U.S. Senator Elizabeth Warren, argue that the focus of private equity on making quick profits destroys long-term value and is detrimental to workers.