Private Equity
Unlike most mature businesses, smaller companies often have a long runway to grow at a higher rate than their larger counterparts.
Often a private equity group will work with an entrepreneur on a strategy called “taking two bites of the apple”. This odd phrase simply means that the PEG will purchase some of your company now and some more later. The issue of whether the PEG will gain any control of the company is open for negotiation.
The purpose of the first purchase or bite is twofold: you get some cash out of the business for your personal use and the business also gets cash for growth. The second purchase or bite is usually after your company has grown, and that is when you can really cash out.
The “two bites” strategy is a win-win-win. You win by taking money out of your business and putting it towards personal goals such as retirement savings or a second home in the mountains.
Your company wins because it receives some cash for growth & improvement of the overall balance sheet health, and of course, the PEG wins because it buys into your company now, but gets the continued benefits of your experience and passion for growing the business.
