Micro Private Equity

Last updated: March 22, 2024

What Does Micro Private Equity Mean?

Micro private equity refers to organized pools of capital used in the acquisition of businesses under $5 million in enterprise value. Traditional private equity will usually not acquire businesses below this valuation level due to the lack of systems and sophisticated management generally associated with businesses of this size.

Micro private equity are typically not structured as a formalized fund, but, rather, a group of high net worth individuals that will invest on a deal-by-deal basis.


Divestopedia Explains Micro Private Equity

There is a significant opportunity for micro private equity in the coming years where an increasing number of business owners are looking for exit alternatives. Micro private equity will play an important role partnering with entrepreneurs to buy businesses from retiring owners that are seeking an immediate exit.

Micro private equity can also generate higher returns than typical private equity due to a few factors including:

  • Ability to acquire businesses at lower valuation multiples due to lack of competitive sale processes with limited number of buyers fighting for deals in this space;
  • Injection of young motivated management teams that will replace the exiting owners who may have been content with the business size and process. This new management will often implement more effective business processes that were not used by the previous ownership to aggressively grow the business; and
  • Attractive deal structures that include vendor financing, resulting in higher returns on the buyers’ equity.

The higher potential returns are commensurate with the high risk associated in smaller businesses due to lack of scale, business systems and barriers to entry.


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