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Entrepreneurship and the Financial Community

Entrepreneurship and the Financial Community

Starting up and Growing New Businesses

Edited by Bart Clarysse, Juan Roure and Tom Schamp

This highly accessible book brings together the insights of leading academics and researchers to promote a better understanding of the role of private equity providers in the development of growth-oriented start-ups and the management of growth processes.

Chapter 3: Private Equity Investors, Corporate Governance and Professionalization

Christof Beuselinck, Sophie Manigart and Tom Van Cauwenberge

Subjects: business and management, entrepreneurship


Christof Beuselinck, Sophie Manigart and Tom Van Cauwenberge 1. INTRODUCTION Private equity (PE) has developed as an important financing mechanism for firms where traditional financing alternatives are insufficiently accessible or impossible to obtain. PE in the sense of venture capital, which is typically provided to young and small firms without sufficient track records and assets in-place, fills the void between sources of funds for innovation and traditional financing alternatives. In a broader sense, PE also represents external equity capital that is raised to strengthen a company’s balance sheet, to make acquisitions or to finance a management buy-out or buy-in. Hence, PE is an instrument which complements established financing alternatives like bank and other credits on the one hand and stock markets on the other. It fulfils a vital task in contemporary capital markets by enabling firms to obtain the necessary capital to develop, run and expand their businesses. Unlike most intermediate finance mechanisms, PE combines the provision of finance with active governance and control in their portfolio firms. Thus, by raising PE, entrepreneurs can finance their businesses and in addition obtain a spell of professional management skills and supportive guidance. This combination allows businesses to achieve a higher level of professionalism. Public authorities like the Organization for Economic Cooperation and Development (OECD) and the European Union (EU) are increasingly convinced of the key role that PE encompasses in the overall business development of a region or country and stimulate its development actively. The specific nature and...

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