The Rise of Minority Investments in Private Equity

Private equity isn’t always about taking full control. Increasingly, investors are using a private equity minority investment strategy to partner with founder-led businesses without replacing leadership or disrupting culture.

These deals provide capital, strategic guidance, and growth resources—while allowing founders to retain majority ownership and decision-making power. For many business owners, it’s the perfect way to scale without sacrificing control.

At Merge, we work with both founders and investors to structure minority investments that align incentives, unlock growth, and set the stage for future success.

1. What Is a Minority Investment?

A minority investment occurs when a private equity firm purchases less than 50% of a company’s equity. The founder remains the majority owner and typically continues to run day-to-day operations.

Key characteristics:

  • PE firm takes a non-controlling stake.

  • Founder retains operational leadership.

  • Partnership focuses on growth, expansion, and value creation.

2. Why PE Firms Use a Minority Investment Strategy

The private equity minority investment strategy is appealing for both investors and founders because it:

  • Provides growth capital without forcing a sale of control.

  • Reduces risk for PE firms by aligning with committed founder-operators.

  • Opens opportunities in high-quality businesses where founders aren’t ready to exit.

💡 For PE firms, this strategy can serve as a “toe in the water” approach that leads to a future majority acquisition.

3. Why Founders Like Minority Investments

Founder-led companies often choose minority deals when they:

  • Want funding for expansion but value autonomy.

  • Need a strategic partner for operational improvements.

  • Are exploring partial liquidity while staying active in the business.

  • Want to position the company for a larger sale in 3–5 years.

4. How to Structure a Minority Investment

A successful private equity minority investment strategy depends on careful structuring. Common elements include:

A. Equity Percentage

Typically ranges from 10–49%. The exact stake depends on capital needs, valuation, and founder preferences.

B. Governance Rights

While PE firms don’t control operations, they may request:

  • Board seats or observer rights.

  • Veto power over major decisions (e.g., new debt, acquisitions).

C. Financial Terms

  • Valuation method (EBITDA multiple, revenue multiple).

  • Preferred returns or dividend rights.

  • Exit provisions, including drag-along or tag-along rights.

D. Growth Capital Allocation

Investment funds are earmarked for:

  • Geographic expansion.

  • Product/service diversification.

  • Technology and infrastructure upgrades.

  • Strategic acquisitions.

5. Common Deal Structures

Growth Equity

Capital is invested directly into the company to fund expansion initiatives, without buying out existing shareholders.

Recapitalization

A mix of liquidity for the founder and growth capital for the business, often combined with debt financing.

Convertible Preferred Equity

Gives the PE investor preferred dividends and the option to convert into common equity under certain conditions.

6. Key Considerations for Founders

A. Cultural Fit
A minority investor should complement—not disrupt—the existing company culture.

B. Strategic Alignment
Investors must share the same vision for growth and the long-term exit plan.

C. Governance Balance
Founders must be comfortable with the level of oversight and decision-making involvement from the PE firm.

7. Key Considerations for PE Firms

A. Clear Value Proposition
Beyond capital, the PE firm must bring strategic and operational expertise.

B. Measurable Growth Plan
There should be a well-defined path to increasing enterprise value for both parties.

C. Future Exit Strategy
Minority stakes are often sold during a recapitalization, majority buyout, or strategic acquisition down the line.

8. Benefits of a Minority Investment Structure

For Founders:

  • Maintain majority control and decision-making authority.

  • Gain access to experienced partners and industry connections.

  • Achieve partial liquidity without a full exit.

For PE Firms:

  • Build trust and alignment with the founder for potential future control.

  • Access high-quality businesses not available for full sale.

  • Reduce capital risk while still achieving strong returns.

9. Potential Challenges

  • Decision-making conflicts: Disagreements over growth strategy or spending.

  • Exit timing misalignment: Founder and PE firm may have different timelines for liquidity.

  • Governance disputes: The balance between oversight and autonomy can be delicate.

💡 Clear agreements and ongoing communication help mitigate these challenges.

10. The Merge Approach to Minority Investments

At Merge, we help structure deals that maximize the strengths of both the founder and the investor. Our approach includes:

  • Matching businesses with PE firms aligned on vision and values.

  • Negotiating terms that protect founder control while providing growth capital.

  • Structuring governance to encourage collaboration, not conflict.

Final Thoughts

A private equity minority investment strategy is a powerful tool for aligning founder passion with institutional resources. When structured correctly, it delivers capital, expertise, and growth without sacrificing the independence that makes founder-led companies special.

If you’re a founder exploring growth capital or a PE firm seeking quality opportunities, connect with Merge to explore the right fit.