Private equity looks to support community growth and investment.
The younger generation, made up of Millennials and Gen-Z, is quickly becoming a segment of the population that the financial sector recognizes as significant to future investment opportunities. According to Fortune, they are earning and saving more and investing earlier at a higher amount than previous generations did at a young age. For example, 31% of Millennials started investing before they were 21 years old, in contrast to 9% of Baby Boomers and 14% of Gen-X.
While the younger generations are investing earlier, they are also concerned about where their investments are going regarding global issues, inclusivity, equity, and community building. Providing greater opportunities for a diverse segment of the population, including women and minorities, is at the forefront of their interests.
Efforts such as Marcus Whitney’s Nashville venture Jumpstart Nova targeted $30 million for its first fund and quickly surpassed the goal reaching an increased hard cap of $55 million with 97 limited partners. As a recent Forbes article suggests, Jumpstart Nova brings organizations and individuals together to invest directly in Black-founded and led companies inside the healthcare industry. Even former Microsoft CEO and billionaire Steve Ballmer recently revealed his plans to invest $400 million in private-fund ventures to support Black entrepreneurs.
The financial community is waking to the reality that investors are interested in placing their money in areas that will make a difference. To better understand the shaping environment inside investing, this reporter sat down with Anthony Agyeman, founder of OKU Capital, a private equity company, to get his take on how private equity (PE) is now playing a renewed role in community building efforts. As the younger generation discerns the various options for investment, they are eager to understand their options, and private equity investing is part of the equation.
“There are many ways to invest in a company,” says Agyeman. Some of the most common methods are buying publicly traded company shares or opting for an alternative investment option. These include venture capital, angel investors, and hedge funds. Yet, according to Agyeman, private equity is one of the fastest-growing investment options in this asset class.
Agyeman explains how PE firms grow their investment portfolio by committing significant capital to targeted businesses.
“They have to be willing to commit long-term financially and leverage their team of expert business developers to grow these companies’ value typically before they exit years down the line for profit. Capital used for these acquisitions is pooled from accredited high-net-worth individuals, pension funds, and other institutional investors. These investors focus on PE firms because they have the potential to earn better returns than public equity markets.”
Agyeman believes that private equity is an effective vehicle for community investment. “Private equities have a huge advantage over public companies, the least not being that they typically are much better drivers of investment growth,” he says. “There’s a reason why this investment method keeps growing year after year. This doesn’t mean that there aren’t vulture PE companies that just want to suck all the juice from any business they purchase—there are. However, the benefits of PE investments far outweigh whatever hiccups may be for investors and the communities where these purchased businesses exist.”
Many PE firms like OKU Capital direct their investments by niching down on just a few industries. Yet, as Agyeman suggests, OKU Capital focuses solely on investments in real estate, e-commerce, software, entertainment, and transportation & logistics. “PE firms will only invest in industries with a robust roster of rockstars who are experts in those sectors and can manage investments initiated there,” he says.
PE Sustained Growth
The dry powder value in private equity is still relatively high today. According to PichBook, dry powder in private equity came in around $1.2 trillion as of Q3 2022. North America continues to be a region of primary interest for PE, with Statista data indicating eight of the top 10 largest PE firms in the world operating from the U.S. In addition, North America is home to a concentration of high-valuation privately owned startups.
Anthony Agyeman has chosen his own path to financial independence.
“The logic is pretty simple,” says Agyeman. “The higher the valuation of a company, the greater the possibility that it will experience high growth, making it a juicy proposition for private equity firms attracted by the prospect of significant returns on investment. At OKU Capital, we purchased a company some time ago that had good prospects but, for some reason, only brought in $40,000 in total for its previous owners. When we took it over and assigned our developers to that fund, we recorded $3.4 million in revenue in just six months. That’s the kind of potential that attracts PE funds,” he says.
It also shouldn’t be surprising that the U.S. is one of the regions with the highest number of unicorn investors. For example, 2022 statistics from Tracxn report that the U.S. leads the global unicorn pool with 865 unicorns or 53% of the worldwide group.
PE Helping Local Communities
The landscape has evolved over the last few years in private equity. According to Agyeman, back in the day, when there was only a handful of PEs with little to no competition, it was the dominant play for these funds to operate like takeover groups, buying companies and stripping them for profits, and selling off the parts. But since then, the number of PE firms in America and globally has exploded, and their growth strategies have significantly evolved.
“There are many PE firms today that are more interested in adding value to the company they buy, its employees, and the community it serves,” says Agyeman. “Such PEs usually invest in the lower middle market, where they won’t buy a company unless they can add value and accelerate its growth. Also, it helps that PEs now generally hold on to their investments for longer periods, around 7-to-10 years. This helps assure the sellers that the PE is committed to their growth and will give employees a role to play in growing the business and themselves.”
In Agyeman’s eyes, there are several ways that private equity benefits businesses. First, PE groups have deep pockets and can make finances available for large projects that will fuel growth. For instance, a PE firm can spend money to renovate or expand a community plant that employs many locals, purchase new equipment, or improve marketing and branding initiatives.
Of course, this presupposes that PEs come with the requisite talent and expertise that a business needs to thrive, meet its goals, and maximize its value, expresses Agyeman. A scenario could manifest as experts commit to training company staff, securing bigger contracts, expanding its value stream, launching online distributions, and more.
Private equity firms also typically have connections to many leaders of industry and C-suite executives. In Agyeman's opinion, through PE, these leaders can share emerging trends, experiences, and best practices with employees of the purchased company, opening up the path to a new community and invaluable business connections.
According to Agyeman, when PEs invest their money into small businesses, they’re helping them keep their doors open, provide new job opportunities, and establish footprints. He sees a direct benefit to millions of Americans when PEs invest. “One of the most prominent investors in private equity is public pension funds,” he adds. “This means teachers, public employees, firefighters, and more are beneficiaries of the returns, boosting their retirement savings.”
As younger investors learn more about where to place their earnings in investments, private equity remains an area of potential if the circumstances align with key community advancement and inclusion factors. According to Harvard Business Review, A huge opportunity exists for private equity and society as PE moves away from the corporate raider reputation of the ’80s to emerging as a significant player in the sustainability movement powering our global economy.
Agyeman stresses that since PE firms are vested in ensuring the businesses they invest in do well, it should be trusted that they will commit all their resources to ensure the growth and success of an acquisition. Of course, this assumes a well-meaning PE buys the company. Agyeman points to the need for mergers and acquisitions (M&A) advisors to help companies filter the bad eggs from the good ones.
Ultimately, as PEs expand opportunities to engage communities, it’s up to them to consider the values attached to a young, growing generation that wishes to invest in sustainability and collective empowerment.
Interviews have been edited and condensed for clarity.
