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A private equity company is an investment company that seeks funds from investors to purchase stakes in businesses and help them grow. This differs from the individual investors who purchase shares in publicly traded companies, which can be a source of dividends but has no direct effect on the company’s decision-making process and operations. Private equity companies invest in groups of companies called portfolios and attempt to take control of these businesses.

They will often buy a company that has room for improvement. They then make changes to improve efficiency, lower costs, and grow the business. In some instances, private equity firms use loans to purchase and take over a company also known as leveraged buyout. They then sell the company for profits and collect management fees from the businesses in their portfolio.

This cycle of buying, selling and improving can be time-consuming for smaller businesses. Many companies are looking for alternative ways to fund their business that give them access to working capital without the management costs of an PE company added.

Private equity firms have fought back against stereotypes that portray them as strippers, highlighting their management expertise and successful transformations of portfolio companies. But critics, like U.S. Senator Elizabeth Warren, argue that private equity’s obsession with making quick profits erodes the value of the company and harms workers.