5. Investment Process

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Sourcing

Private Equity analysts are Buy Side investors with access to capital. Investment Bankers are sell side analysts who know the companies that are looking for investment. Many new investment considerations start with investment bankers introducing potential investment opportunities to their private equity clients through a process called 'Confidential Information Memorandum' (CIM) which details the investment proposition in some detail along with the background of the company, the current investors (if any) and the management team.

There are also other channels to source new investment opportunities, these include public conferences, networking and cold-calling executives at attractive companies.

Many investment opportunities are presented for Private Equity firm's evaluation every year but only a handful of these opportunities filter down to the investment committee stage. The PE world refers to this as a filtration funnel. Many PE Buy Side analysts spend majority of their time reviewing financials of companies that potentially won't get invested in by their fund i.e. their work never makes it out of the filtration process. But they get paid very well to do the grunt work, so they shouldn't complain. This filtration step in the process is extremely important as it represents a methodical framework driven analysis to weed out the investments that are worth pursuing.

Stakeholders

Investment Process

Once an opportunity is considered to be of interest, the process of evaluating and completing a new private equity investment has many steps that can vary from one firm to another. However, broadly speaking, the process covers the following main steps: