What is private equity and how does it work for startups?

Looking for a cash injection to grow your business? If you’re a UK startup looking for funding, one of the first things you’ll need to do is decide what kind of investment you need. And of course, make sure that your company is eligible and ready for it, and as attractive to investors as possible.

In this guide, we’ll be focusing on private equity (PE). We’ll run through what it is and how it works, and the differences between PE and other kinds of startup funding. Plus, the benefits of private equity for UK businesses, key considerations and whether it’s the right choice for your startup.

As the financial side of things is also important for growth, using tools like Wise Business makes handling money internationally a lot easier.

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What is private equity and how does it work?

Private equity (PE) is a term used to describe an investment of capital in a company that is not publicly listed, in return for equity. The amounts invested can be very large, often in the region of tens of millions of pounds.

PE firms may raise pools of capital in order to create a fund, which is used to buy shares in private companies. These are sometimes established businesses which are deteriorating, inefficient or in need of transformation. A cash injection aims to turn things around, and make these companies profitable.

However, PE investment can be used for startups and young businesses too - especially those looking to scale up and reach the next level of growth.

It’s often the case that private equity firms will take full control of the company, with a majority equity stake - which can in some cases be a 100% stake.¹ This is called a ‘buyout’, which we’ll look at in more detail shortly.

While not always the case, private equity investors tend to focus on traditional industries. For example, manufacturing, agriculture or retail.

They’ll usually look to keep their investment for around 4 to 7 years,² before selling or ‘exiting’ - either through selling to another investor or corporate purchaser, or via the stock market.

What is a buyout?

A buyout, also known as an acquisition, is where a private equity investor buys a majority stake in a business. This is usually over 50%, and it means that they effectively gain control over the company and its day-to-day running. This means control over operating decisions and strategy, and control of the board of directors too.

Buyouts often happen when a company transitions from being publicly traded to privately owned.

There are a few different kinds of buyout. For example, there’s a management buyout where the existing management makes the majority stake investment. There’s also a leveraged buyout, which is where the purchase is largely financed via borrowed funds.

What’s the difference between private equity, venture capital and Initial Public Offering (IPO)?

Startups looking for funding will have many choices, and it’s important to understand the different investment options available and the differences between them.

While private equity is often the best choice for established businesses, venture capital (VC) funding is a popular option for startups and other young businesses. There’s plenty of advantages to securing VC - investments are smaller, growth can be faster and tech startups are often the focus for this kind of investment.

There’s also Initial Public Offering (IPO), which is where a company ‘goes public’ - selling shares to the public to raise capital.

Here’s an at-a-glance look at the differences between private equity, venture capital and IPO:

Benefits of private equity for UK businesses

Private equity offers a number of benefits for businesses, such as:

• Access to very large amounts of finance - usually in the region of tens of millions of pounds
• Access to professional expertise and support, alongside financial investment
• An opportunity to execute an ambitious growth strategy
• A personal process, where the business owner usually only has to deal with a maximum of 5 investors.
• A chance to revitalise a struggling or inefficient business with a significant cash injection.

Is private equity right for my startup?

Private equity might be the right choice for your business if any of the following are true:

• You need funding and expert guidance to take your startup to the next level
• You feel you’ve taken the business as far as you’re able to, and it’s time for someone else to take over
• You’re planning to retire
• Your business is in need of a large investment for a transformation project, in order to turn things around and remain both competitive and profitable.

Remember though that private equity isn’t the only type of funding out there, and it’s not generally used for very new startups.

You’ll need to explore other options such as angel investors and venture capital (VC) funding, especially if your company is in the early stages and is operating in a funding-rich sector such as tech. One of these routes could give you access to capital to help your company grow, but without giving away too much (or any) control.

Key considerations for business owners

The most important thing to remember with private equity investment is that it usually involves giving up at least some control of your business. This is a major step, so you need to make sure you’re completely comfortable with it.

There are also no guarantees of growth or success. Your company may receive a large injection of finance, but your growth strategy may not pan out - so you’ll have given away control for minimal returns.

Lastly, it’s crucial to be ready with your own exit strategy - because you can be sure that your private equity investors will. They could be looking to exit and sell their shares in as little as 5 years, so you’ll need a plan in place for when this happens.

Tips for private equity success

While there are never any guarantees in the world of investment, there are certain things you can do as a business owner to improve your chances of a successful PE investment venture.

Here are some tips for success:

• Research PE investors and institutions thoroughly (ideally before meeting with any investors), so you can understand what investors are looking for and whether your company matches up with their target profile
• Focus on gaining support and expertise, as well as just money - look for sector-specific knowledge or experience you may be lacking on your current board of directors. Investors with good contacts and extensive networks are also great to have.
• Pitch high - it’s usually better to ask for more money and have the investors scale you back, rather than having to go back cap in hand later on.

Grow your company and go global with Wise Business

While you’re looking into funding options for your business, it’s also worth making sure you’re set up with the right business account.

Open a Wise Business account and you can hold and exchange at once.

You can send fast, secure payments to , and get account details to get paid in like a local.

Whenever you need to send, spend or exchange foreign currencies, you’ll benefit from the mid-market exchange rate, with low, transparent fees.

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• No ongoing fees, minimum balance requirements or foreign transaction fees
• Debit and expense cards for you and your team, which you can use in
• Multi-user access for team members, with ways to control and manage permissions
• Pay up to 1,000 people at once with the Wise batch payments feature
• Integrate with your favourite cloud accounting solutions
• Use the powerful Wise API for automation and streamlining workflow
• Take advantage of Wise Interest to make your funds work harder when you’re not using them (capital at risk).

With a truly global account, you’ll be all set to grow your business worldwide.

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And that’s about it - our helpful guide to private equity and how it works for startups and more established businesses in the UK.

We’ve looked at the benefits, risks and considerations to bear in mind before seeking out private equity for your company - as well as how PE differs from other kinds of investment such as venture capital (VC) and initial public offering (IPO).

After reading this, you should have a better idea of what private equity is and whether it’s the right choice for your company.

Just make sure to do plenty of research and get some expert advice before making a decision, especially if it’ll involve giving away control of your company.

Sources used:

Sources last checked on date: 14-Aug-2025