With discussions on how to tax private equity at the same rates as banks, it is worth understanding how PE and banks work and why the PE investor is actually an entrepreneur rather than a cog in the big machine wheel: 

1. Risk: Equity investors are willing to risk their entire investment but exchange that risk with the belief that the business will grow and multiply like rabbits breeding with equally enthusiastic rabbits. “When you put your own capital at risk, you are an entrepreneur too. If you don’t put your own capital at risk, you don’t work hard at it,” says Peter Plows of Cobalt Capital.

2. Long Term: VC money is a long-term investment ranging from three to seven years.

3. Grow Together: The Venture Capitalists (VCs) and the Fund Managers do expect to be active in the business and its strategy to grow. The VC involvement varies by fund but they will be sticking in the oar until the business is evolved enough to take public or sell or for the owner to earn back the business. Usually, private equity investors will want a Board seat.

4. Partners Not Lenders: The money comes with the requirement that the investor has minority or equity participation (owning common shares outright, or having the right to convert other financial instruments into common shares).

If companies that could see revenues of $5 million eventually will not be of interest compared to those that could see a $50 million or $100 million market. Wait—don’t stop reading if you think that is not possible. It could be with a private equity partner and many owners who got into private equity will tell you how it shifted their whole view of what was possible.