Quick answer
Private equity is investment in a company that is not traded on a public stock exchange, usually through a fund or investment firm that provides capital in exchange for an ownership stake or negotiated rights. In Nigeria, a private-equity deal can support growth, a buyout, restructuring or expansion, but it may involve dilution, governance rights, reporting obligations and a long exit timeline.
Founder planning helper
What percentage could an investment buy?
This simple maths tool shows ownership before other terms, option pools, preferences or future dilution are negotiated.
What private equity means
Private equity describes capital invested into private companies or assets, often by a fund backed by institutions, family offices, pension-related investors or high-net-worth individuals. The fund does not simply lend money and wait for interest; it may buy a stake, influence strategy, appoint board members, improve operations and seek a return when it exits.
The phrase can cover different strategies: growth capital for an expanding company, a buyout of an existing owner, a rescue or restructuring investment, infrastructure or real-estate funds, and sector-focused funds. Ask what the investor is actually buying and what the fund expects to do after investing.
How a private-equity deal works
The process usually starts with sourcing and screening, followed by meetings, a term sheet, due diligence, negotiation of legal documents, completion and post-investment reporting. Due diligence may cover accounts, tax, contracts, customers, staff, intellectual property, licences, litigation, data protection and the ownership of shares.
A founder should expect questions about revenue quality, gross margin, cash conversion, customer concentration, governance and the path to growth. An investor will also examine whether the company can absorb capital and whether the owners can work together under a more formal reporting and decision-making structure.
How much ownership could be diluted?
If a company is valued at ₦100 million before a ₦25 million investment, a simple post-money calculation gives the new investor 20% before other terms. The result can change if the transaction includes an option pool, convertible instrument, preference rights, a different valuation basis or a later funding round. Use the calculator as a starting point, not a deal document.
Founders should ask whether the stated valuation is pre-money or post-money, whether existing shareholders are selling any shares, and whether new shares are being issued. A lower percentage is not automatically better if the business cannot grow without capital; the decision is about the value, control and risk traded for the funding.
Private equity versus a bank loan or angel investor
A loan can preserve ownership but creates scheduled repayments, interest and possible security requirements. Private equity can reduce immediate repayment pressure but gives up ownership or rights and may introduce a more demanding governance relationship. Angel investors may invest smaller amounts and bring experience, networks or a different time horizon.
The best funding source depends on cash flow, growth speed, collateral, founder goals, the business model and the level of control the owners are willing to share. Compare the full cost of capital, not only the interest rate or percentage on a term sheet.
Risks and red flags
Private equity is not guaranteed money and it is not automatically a sign that a company is successful. A deal can fail during due diligence, take longer than expected or create tension around control, budgets and hiring. An investor may also have a different target exit date from the founder.
Be cautious when a supposed investor asks for upfront money before sharing a verifiable mandate, refuses to explain the investment vehicle, promises a guaranteed return or wants personal banking information through an unofficial channel. Use a qualified lawyer and accountant for a serious transaction, especially where shares, tax or cross-border funds are involved.
What founders should prepare
Prepare a simple data room with incorporation documents, ownership records, financial statements, tax evidence, major contracts, customer metrics, staff information, licences and a clear use-of-funds plan. Make sure the story in your pitch matches the numbers in your accounts.
Define what a successful partnership looks like: capital amount, milestones, board rights, reserved matters, reporting frequency, founder role, future fundraising and exit options. A good deal is not just the amount received; it is a workable relationship with terms that the company can perform under.
People also ask
What is private equity in simple terms?
It is investment into a private company or asset in exchange for ownership or negotiated rights, usually with a plan to improve value and exit later.
Is private equity the same as a loan?
No. A loan is debt with repayment obligations; private equity usually involves ownership, governance rights and a return linked to the investment's value.
How does private equity make money?
A fund generally aims to sell its stake or realise the asset at a higher value after growth, restructuring, dividends or another exit.
Can a small Nigerian business get private-equity funding?
Possibly, but investors usually need evidence of a scalable business, governance, financial records and a realistic use-of-funds plan.
What is dilution?
Dilution is the reduction in an existing owner's percentage when new shares are issued. The commercial value and control terms matter alongside the percentage.
Should I sign a term sheet without advice?
Get qualified legal and financial advice before signing a binding or complex term sheet, especially where shares, tax or control rights are involved.
Official links and update policy
Portal availability, deadlines, fees, channel line-ups, financial rules and product terms can change. Open the official source before applying, paying, submitting personal information or relying on a current price. Explainer.NG explains the process but does not run the portal or represent the organisation.