A Private Investment Fund is often structured as a financial company where several natural or legal persons pool their money. This creates a fund large enough to invest in projects that a single director could not finance alone. The second goal of these financial companies is to allow their directors, who frequently have different profiles, to dilute their investment risk.

Very often, the people who establish these funds determine the target companies the fund can invest in. For example, the founders might decide to intervene only in tech companies with at least 3 years of experience and a turnover of at least 5 million euros. They will also determine the minimum and maximum amounts for their investments.

Investment funds must be approved by the FSMA (Financial Services and Markets Authority) to operate.

Funds intervene in various scenarios and in different forms. They can provide liquidity to a company for its development, but also inject cash flow to help a business survive. They can also finance Venture Capital to help a startup get off the ground. Some even intervene earlier than that, during the research and development phase.

They can also participate in Leveraged Buyout operations to finance the acquisition of a company. In these cases, funds very regularly use a subordinated bank loan. They can even step in for distressed companies, including during a Judicial Reorganization Procedure.

Repayment formulas also vary depending on the type of loan, but they rarely exceed 7 years. Financing options are diverse and can take the form of equity participation, convertible loans, or standard loans with highly variable interest rates.

Some funds will only invest if the lending financial company joins the applying company board of directors via its own administrators. This should be seen as an added value to the loan, even though these directors are very frequently remunerated for their services.

Advantages

• Funding decisions can be made very quickly.
• The fund financial company puts its expertise and network at the service of the business.
• Repayment conditions can be fairly easily adapted if the company faces difficulties along the way.
• No personal guarantees are required.

Disadvantages

• Loan interest rates are high.
• The business owner is no longer entirely free to do whatever they want without reporting to their new board of directors.

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