A private equity company is an investment company which raises money to help companies grow by purchasing stakes. This differs from the individual investors who purchase stock in publicly traded companies, which allows them to receive dividends, but has no direct impact on the company’s decisions and operations. Private equity firms invest in a collection of companies, also known as a portfolio, and typically attempt to private equity firm take over the management of those businesses.

They typically purchase the company with room to improve, and implement changes to improve efficiency, cut costs, and increase the company. Private equity firms can utilize debt to purchase and then take over a business in a process referred to as a leveraged purchase. They then sell the company at an profit and collect management fees from the companies within their portfolio.

This cycle of buying, selling, and re-building can be a long process for smaller businesses. Many companies are searching for alternative funding methods to allow them access to working capital without the management fees of a PE firm added.

Private equity firms have fought back against stereotypes that portray them as strippers, highlighting their management expertise and the success of transformations of portfolio companies. But critics, including U.S. Senator Elizabeth Warren argues that private equity’s main focus is on quick profits, which damages the long-term perspective of workers and undermines their rights.