Starting up and Growing New Businesses
Edited by Bart Clarysse, Juan Roure and Tom Schamp
Chapter 3: Private Equity Investors, Corporate Governance and Professionalization
3. Private equity investors, corporate governance and professionalization 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...
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