The company you founded is getting healthy EARNINGS and it has become a market leader, so you have decided to sell it and are expecting a respectable return. You can wait and keep growing it so it fetches a better price, but you need capital and a management team with the vision and resources to make it happen. Selling one private capital firm staying involved during the growth phase may be the strategy you need — whether you are willing to lose everything to try to reach that point.

Losing everything is always a possibility in business, but equity sales drive the stake even higher. These investors typically seek a return of up to seven times EBITDA (earnings before interest, taxes, depreciation and amortization) at the time of purchase, within three to seven years. If the bet pays off, everyone is happy. If it doesn't, they could lose everything. What's worse, you probably won't have a say in how the new owners play their hand.

Private equity firms have become more distinct and particular about acquisitions, but there are always opportunities if your company is successful, has room to grow and shows it can realize its potential. They tend to look for companies in the industry with a proven model of recurring revenue. That's what equity firm Blackstone saw when it moved to buy a majority stake in Spanx from founder Sara Blakely in 2021.

After transforming the shapewear industry in the early 2000s, Spanx found its success stagnating during the pandemic and facing an expanding field of competitors. Blakely also wanted to develop more products and channel extensions, but needed partners to help. The deal she struck with Blackstone valued the company at $1.2 billion and pushed her personal worth into the billions. Blakely remains a “significant” shareholder in the company.

Related: Every business owner needs an exit plan – It's time to develop your own.

Making the perfect capital match

Spanx may have lost some of its luster before the deal, but its foundation must have been strong, or Blackstone wouldn't have done more than glance at it. Most private equity groups look first profitabilitytypically with at least $1 million in EBITDA earnings. But they also want a well-structured management team. After all, a private equity group is really just a group of investors with a lot of money and other financial resources. They don't have staff that come in and help run the business. So they need people in the industry to continue to run it even if the owner leaves or leaves. They may open some doors, but it's up to the original team to walk through them and make the plan work.

You also need to make sure everyone has the same expectations about why they're bringing in investors, the results they want to achieve and how they're going to achieve them. Lack of clarity can lead to unhappy outcomes.

A regional consulting company I was working with had grown significantly and the owner wanted to go local but felt he had taken it as far as he could go. He brought a really familiar private equity firm that bought a large part of the company. He and his partner planned for one to retire and the other to stay and manage the firm. But they weren't clear on what the metrics were for success at the next level of exit, and worse, they didn't align with the equity firm's strategy. The company went out of business in just a few years. Both partners lost their equity and some money owed on the deal.

The lesson here: You need to be clear across the board. Take these steps to get the clarity you need:

Understand what equity investing can and cannot do

Many business owners have the mistaken idea that it is the best thing in all situations – that it will pay and grow them the most. It may not work in your specific case.

Be clear on your strategy for selling to the equity firm

Do you want to go all out and sell 100% to investors, or stick around to get “a second bite at the apple” with higher returns after the equity crowd grows your company?

Interview other entrepreneurs who have worked with this private equity firm

Most private equity groups have a complete list of all the companies they have invested in and acquired. You are entering into a partnership with these people, so you want to vet them just as you would when bringing any other partner into your business.

• Talk to the founders of those companies and ask how well the investors executed their strategy. Did they get results? How was the process?
• Ask about the company's cultural transition. How did the founder feel going from being in charge to being more of an employee or manager? Was it a good culture overall? Were the employees who stayed happy?
• Find outside counsel.

Private equity is a small specialty in the financial sector and doesn't do many deals, so news like the Spanx deal gets a lot of attention. cAPITAL INVESTING it also gets a lot of informal (and often uninformed) word-of-mouth coverage; other business owners will sometimes make decisions based on this. An expert advisor can get you the right information to make the right decision for you. Going the private equity route can be a profitable exit plan for your business, so it's worth considering.

Related: Private equity is vital to entrepreneurs as it grows and adapts to changes on the horizon

Start with brainstorming

Before you do any of this, have a thorough exit plan and succession strategy that outlines what the end looks like and how you can best get there. Don't just consider the valuation you want, but also look at how you want the transition to proceed—from the details like how you want employees to care to the big goals, like the legacy you leave. Sit down and really think about your exit strategy.

Take advantage of all your growth opportunities BEFORE you bring in strangers and they are more likely to seek you out.