I heard a quote recently that stopped me in my tracks:
“When you secure investment from private equity you are inviting private equity into your home but you will be playing by their rules.”
It is an uncomfortable metaphor and that is precisely why it is such an accurate one.
Private equity investment can be transformative. It can accelerate growth, de-risk personal exposure, professionalise management and unlock value that would otherwise take years to realise. But it is not just capital, it is a change of control, culture and expectations whether founders acknowledge that at the outset or not.
Capital Is the Easy Part
Founders often focus on valuation, headline consideration and equity percentages. Those numbers matter, but they are not where private equity exerts its influence.
The real impact sits behind the scenes:
- Governance rights
- Reserved matters
- Reporting obligations
- Exit timelines
- Management incentives
- Control over strategy, budgets and senior appointments
Once private equity has a seat at the table, the business no longer belongs solely to its founder even if the founder remains the majority shareholder.
You may still live in the house but you now have an occupier who expects you to play by its rules.
Private Equity Has a Job to Do
Private equity funds are not passive investors. They have fiduciary duties to their own investors, defined return horizons and a clear commercial mandate.
That typically means:
- Growth targets that are non-negotiable
- Disciplined financial reporting and forecasting
- A defined exit plan (often from day one)
- A willingness to replace management if performance falters
This is not personal. It is structural.
Founders who expect private equity to behave like a supportive business partner, without imposing discipline or pressure are often disappointed. Founders who understand the rules early are far better placed to succeed.
Control Is Rarely Lost Overnight
Loss of control usually happens incrementally.
It starts with reasonable requests:
- Monthly management accounts
- Board approval for major spend
- Standard information rights
Then it develops into:
- Veto rights over key decisions
- Tight covenants around debt and dividends
- Management incentive schemes aligned to the fund’s exit timetable
Individually, these provisions can look benign. Collectively, they can fundamentally alter how a business is run and who is really in charge.
By the time friction appears, the legal position is often already fixed.
The House Rules Are Set in the Legal Documents
This is why the investment documentation matters far more than many founders appreciate.
Shareholders’ agreements, articles and investment agreements are not boilerplate.
They define:
- Who controls the board
- What decisions require investor consent
- How exits are forced or blocked
- What happens if relationships deteriorate
Once signed, these documents are extremely difficult to unwind.
Good legal advice at this stage is not about “being awkward” or slowing the deal down. It is about ensuring founders understand the consequences of what they are agreeing to, commercially as well as legally.
Private Equity Can Be the Right Decision
None of this is to say private equity is a bad option. For many businesses, it is exactly the right one.
The key is alignment.
If a founder:
- Wants rapid growth
- Is comfortable with scrutiny and accountability
- Understands that an exit is inevitable
- Is prepared to share (or cede) control
Then private equity can be a powerful catalyst.
Problems arise when founders want the money without the reality that comes with it.
Final Thought
Private equity does not sneak in through the back door. It walks in through the front, contract in hand.
The question is not whether private equity will change how your business is run, it will.
The real question is whether you understand the rules of the house before you hand over the keys.
Because once they are inside, the rules are already written.
A Practical Note
This is the point at which founders are best served by advice that is commercial, not theoretical. Advice from someone who understands how investors think, how deals are structured and where control is really won or lost in the documentation.
At NJB Legal, I work with founders, owner-managers and investors on private equity and growth capital transactions with a focus on clarity, leverage and long-term outcomes, not just getting a deal done.
If you are considering taking on external investment, an early conversation can often make a material difference to where you end up later.
No jargon. No waffle. Clear outcomes.