/11.svg)
The Private Equity Landscape Has Changed
After a decade of record-breaking dry powder and frothy valuations, the private equity (PE) landscape is facing a new reality in 2025: capital is still out there—but it’s harder to raise, more expensive to deploy, and tied to stricter expectations.
According to reports, while global private equity fundraising increased year-over-year in 2024, overall deal value and volume is down again in mid-2025. This is largely due to uncertainty about tariffs and international conflicts. Limited partners (LPs) are growing more cautious, and general partners (GPs) are sharpening their pencils. In this tougher environment, companies looking to attract PE backing—whether as a platform, bolt-on, or late-stage growth target—must look sharper, leaner, and more finance-savvy than ever before.
If you're a CFO or finance executive trying to position your company for a successful round (or future exit), here's how to stand out when investors are being selective.
1. Clean Up the Financial House—Aggressively
PE firms are scrutinizing deals with a new level of diligence. One red flag—unclear revenue recognition, weak internal controls, messy capitalization tables—and your deal may stall or fall.
Action items:
-
Audit readiness: Make sure your financials can pass GAAP or IFRS audit with minimal adjustments.
-
Revenue clarity: Ensure ARR/MRR (if applicable) is cleanly tracked and segmented by product, channel, or geography.
-
Cash flow mastery: Know the drivers of free cash flow. Many investors now rank cash flow consistency over EBITDA multiples.
🔎 Example: In Q1 2025, PE interest in healthcare SaaS companies cooled after several high-profile firms overstated ARR by including non-recurring services revenue.
2. Show Pathways to Profitable Growth
Gone are the days when burning cash to chase growth was acceptable in every sector. Today, GPs want scalable growth with a clear path to margin improvement.
How to demonstrate this:
-
Provide unit economics by product or segment—showing customer acquisition cost (CAC), lifetime value (LTV), and payback period.
-
Highlight operational leverage—e.g., how SG&A as a percentage of revenue improves over time.
-
Identify areas where automation or restructuring will yield margin gains.
🧠 Investor sentiment is shifting: According to Bain’s 2025 Global Private Equity Report, 71% of GPs surveyed now prioritize “profitable growth” over “growth at any cost.”
3. Prepare for a Longer, Harder Diligence Process
The average PE diligence cycle has stretched to 4–6 months, especially for deals over $50 million. During that time, firms may dig into:
-
Customer churn patterns
-
Real-time KPI dashboards
-
System integrations and data hygiene
-
Contingent liabilities and litigation exposure
Tip: Have a virtual data room ready even before you start pitching. Include financials, contracts, HR policies, cap table, and tech stack documentation.
⏳ Case in point: A midsize logistics tech firm in Chicago lost a $120M offer in late 2024 when data inconsistencies surfaced in late-stage diligence. A quick internal audit revealed duplicated invoices and conflicting ARR definitions.
4. Build a Finance Team PE Firms Trust
Investors aren’t just buying your products—they’re buying your ability to execute. And that starts with who's managing the money.
Winning finance teams:
-
Include a CFO who understands investor dynamics and can speak fluently about capital allocation.
-
Maintain tight monthly reporting cadences and robust scenario planning.
-
Leverage automation tools (e.g., NetSuite, Power BI, or Vena) to deliver insights—not just reports.
If your in-house team is lean, consider a fractional CFO or PE-savvy financial consultant to help guide the process.
5. Nail Your Exit Narrative—Before They Ask
Even in early-stage investments, GPs want to know: What’s the likely exit? IPOs remain sluggish in 2025, so secondary buyouts and strategic acquisitions are the likely targets.
You should be able to articulate:
-
Comparable company valuations and exit multiples
-
Industry consolidation trends
-
Why your company is an attractive bolt-on or platform
-
How capital from this round accelerates that path
🛒 Example: In 2024, food-tech startup EveryGrain raised a $40M growth round by showing how its customer base overlapped perfectly with three major CPG acquirers, teeing up a 3–5 year exit strategy.
6. Be Transparent About Risk—and Show Mitigation
PE investors know every business has risks. What they hate is surprises.
So:
-
Be upfront about regulatory issues, IP ownership, customer concentration, or dependencies.
-
Show what steps you’ve taken (or will take) to mitigate them.
-
Include risk in your forecast models with upside/downside sensitivity.
🔐 Current trend: Cybersecurity is a rising concern. If you handle customer data or run mission-critical operations, investors will want to know your cyber posture is sound.
7. Offer a Vision, Not Just a Valuation
While numbers matter, so does leadership confidence and clarity. PE firms want to back founders and executives who know:
-
What they’re building
-
Where they’re going
-
How capital will accelerate, not just sustain, the business
Make your equity story compelling, even in a conservative capital cycle.
🔍 Frequently Asked Questions (FAQ)
Q1: Are private equity firms still investing in 2025?
Yes—but more selectively. While dry powder remains high (over $1.1 trillion globally), GPs are under pressure to deliver returns and are doing fewer, higher-quality deals. Companies must be more prepared to win capital.
Q2: How can I make my company more attractive to PE firms right now?
Clean financials, scalable growth, strong unit economics, and a credible management team are critical. It also helps to have a clear exit plan and proactive risk disclosures.
Q3: What sectors are seeing the most PE interest in 2025?
Current hot sectors include:
-
Healthcare and health-tech
-
Cybersecurity and compliance software
-
Industrial automation
-
Logistics and supply chain optimization
But even within these, only the best-run companies are attracting attention.
Q4: How long does the average PE diligence process take now?
Expect at least 4–6 months, with more touchpoints and requests for granular data. Prepping early and having a ready data room can shorten timelines and increase trust.
Q5: Should I consider a fractional CFO to help prep for PE investment?
Absolutely. A fractional CFO with deal experience can help get your books investor-ready, create clean forecasts, and guide the pitch process—often at a lower cost than hiring full-time.
💬 Final Thoughts
In 2025, private equity is no longer about capital abundance—it’s about capital discipline. For financial leaders, that means thinking like investors, tightening operations, and telling a growth story that stands up to scrutiny.
If you can meet the moment with clarity, precision, and vision, your business can still secure the backing it needs to thrive—even in this tougher market.
Need help preparing your company for private equity investment or diligence? Our finance team has supported many PE transactions. Let’s talk.