Private equity provides expansion capital for profitable or big businesses. A pool of investors come together to create a mega fund that increases their buying power.

Company Buyout
Company buyout is one investment set-up through which big business financing can be undertaken. Equity financing can completely buyout 100% of a company’s shares, including shareholders or existing investors. Typically the business founder is retained as business manager, but some investors can bring in new management.
Founder Buyout
As the second investment set-up, some investors choose to buyout the business founder/owner only, retaining previous investors. A management buyout can also facilitate owner buyout when employees work with external investors to finance the purchase.
Sometimes owners may sell their stake in a company due to internal differences with existing investors, divorce settlement, retirement, illness etc. In most cases, equity investors will buyout a founder if his stake offers a controlling percentage on the company.
Expansion Capital
Profitable businesses seeking growth can be caught up by conditions that hinder financing. For instance, a profitable business owner may have his/her assets tied down as bank collateral for loans that are yet to be paid. Finding financing can thus prove difficult when looking for growth prospects. That is where external equity investors come in handy.

Their financing provides entrepreneurs or founders with the opportunity for further growth and expansion. All in all, external equity investors are simply financial investors. As such, their investment decisions are solely guided by expected returns on the invested sum.