FAQ
What is private equity investment?
How large of a portion of the company’s shares outstanding will Tutor Invest receive against the private equity investment?
How large of a return does Tutor Invest expect from its investments?
How long is Tutor Invest’s investment horizon? At what point does Tutor Invest want to detach itself from the ownership of the company?
How does Tutor Invest exit the company?
How do I commence a financing process with Tutor Invest?
What is Tutor Invest’s investment process like?
What is private equity investment?
Private equity investment is investing in unlisted companies with good prospects for development. A private equity investor is not a permanent owner, but is set to exit the investment according to a prepared plan. Private equity investments are made primarily as equity investments or as mezzanine financing. The aim of a private equity investor is to promote the company’s value growth. The growth in value is realized at the exit stage when the private equity investment company gives up its share in the target company.
Private equity financing is an unsecured, long-term form of financing. Private equity investments are made as equity investments, usually by subscribing shares when the share capital is increased. Convertible bonds, other loans as well as mezzanine instruments are also possible.
The size of investments made by private equity investors typically vary between €0.1 million and €5 million, but the investments can also be larger. However, the private equity investor is almost always the minority investor in the company. The majority share is held by the entrepreneur or the ownership is divided between several owners so that no one single owner holds the majority.
Along with the entry of a private equity investor, the attitudes of loan providers toward the company often change as well. For instance, from a bank’s perspective the risks associated with corporate activities are now shared by a larger number of participants, which makes it easier for the bank to come to a positive decision on granting a loan. This is understandable, since the private equity investor, having experience in business activities, has already assessed the risks associated with the endeavor and consequently made the decision to join the company as a co-owner.
Tutor Invest makes the investments from the private equity funds it manages. Private equity funds typically raise monies from large institutional investors such as insurance companies, pension funds, banks as well as the public sector. The funds are established for a fixed term and are primarily organized in the form of a limited partnership company.
How large of a portion of the company’s shares outstanding will Tutor Invest receive against the private equity investment?
Private equity investment is typically carried out by issuing new shares and option loans. Tutor Invest’s portion of the share issue depends on the size of the capital needed by the company as well as on the potential value of the company’s future business. This value is estimated in collaboration with the entrepreneurs themselves. The prerequisite for a successful private equity investment is that the entrepreneurs and Tutor Invest share a common vision of this value.
How large of a return does Tutor Invest expect from its investments?
The return Tutor Invest expects from its investments is determined by the level of risk in the investment in question. The aim of a private equity investor is to receive an adequate return on the capital invested. Reaching the expected level of return requires that the value of the target company has developed according to expectations and that t he company has entered a steady and profitable growth trend.
How long is Tutor Invest’s investment horizon? At what point does Tutor Invest want to detach itself from the ownership of the company?
A private equity investor is typically only a temporary owner. The return is realized upon the investor giving up its share in the ownership of the company, typically in approx. 3-5 years. The private equity investors tend to exit the companies they have invested in within a few years. This is due to the fact that: (i) the private equity investment company has a need to regularly measure the return to its investment activities, which can only be carried out by liquidating the private equity investments. (ii) the invested company may have reached its growth target and established its position in the market, at which point the private equity investor can free its capital to new investments.
How does Tutor Invest exit the company?
Tutor Invest can exit the company, among other things, the following ways:
(i) Private shareholders and Tutor Invest both sell their shares to a third party.
(ii) Private shareholders buy Tutor Invest’s share in the company.
(iii) The company goes public, after which Tutor Invest can sell its shares in the market.
How do I commence a financing process with Tutor Invest?
The company should draft a business plan describing the company’s business idea, revenue model, growth strategy, products and technology, cash flow analysis as well as a financing plan. Drafting a high quality business plan is a demanding task and for this reason, we recommend using expert advice. Help in the drafting of a business plan is available from specialist advisory companies, such as Tutor Partners Oy Ltd, a Tutor-group company.
What is Tutor Invest’s investment process like?
It consists of the following phases:
a) Commencing cooperation, b) Negotiations phase c) Investment agreement and Due Dilligence, d) Investment, e) Business development, f) Exit
a) Commencing cooperation with Tutor Invest
At the beginning phase of the investment process we get to know the company’s business model, its markets as well as the acting management and its plans for the future. We pay particular attention to evaluating the competence and experience of the management. On our part, we inform the company about our working practices as well as about our goals as investors.
b) Negotiations phase
During the negotiations phase the main points of the investment are agreed upon, such as the investment amount, allocation as well as timing, and ensuring that both the private shareholders and the investors share a common vision on the development of the company.
c) Investment agreement (shareholder agreement) and Due Diligence
Detailed terms on the execution of the investment, development of the company’s business, definition of the governance structure and the exit from the investment are agreed upon in the investment agreement. Along with the preparations for the investment agreement, and prior to the actual investment decision, we conduct a business, legal and financial due diligence review in the company and, if necessary, other surveys are conducted by experts.
d) Investment
Before the actual execution of the investment, we have the final investment endeavor approved by a decision making body consisting of the investors of the private equity fund. After approval, we carry out the investment and move on to develop the company’s business in collaboration with the board of directors and the acting management.
e) Business development
During the investment period we actively participate in the business development of the company by means of board work and through projects specifically agreed upon. Our goal is to create circumstances to enable the management of the company to implement the chosen strategy by employing adequate financial and personnel resources as well as through an external network of contacts. In addition we intend to build a motivating incentive system for the key personnel to reach the set goals.
f) Exit
The main guidelines concerning the exit from the investment are jointly defined before the actual investment is executed. Our operating philosophy is to promote the company’s value growth during the investment period by making long-term preparations for ensuring the highest possible post-exit level of expertise, know-how and best possible financial situation in the invested company.