Most private equity investments see various investors part-investing with each other. One investor tends to be the lead investor while the others commit a certain amount in the round. Traditionally investors were seen as pure competitors. However, co-investing has become a norm today due to the various advantages it brings with it.
2 Brains are Better Than 1 – Different investors look at different businesses in their own ways. One may look at the scaling potential while the other may be more focused on profitability. Co-investing ensures that more aspects of the business are analysed well before making any monetary commitments.
Division of Risk – Since the amount raised is divided between investors, the risk is also divided.
More Skills on the Table – Different investors bring different skills and resources to the table. Some may have better technology skills with them while others may be more focused on marketing. Some may have a better network for follow on investments. The more the investors, the more skills which are brought to the table.
Less Competition – Since investors are co-investing, it reduces competition and the risk of these investors investing in competitor companies. This works out better for investors and entrepreneurs.
Emotional Comfort – Other than the tangible benefits mentioned above, investors also have an intangible benefit of getting in other investors. If any investment goes wrong, an investor gets comfort in the fact that there were other investors as well who believed in the business.
Co-investing is hence a trend which benefits both investors and entrepreneurs. Investors can support each other and bring more to the table. Entrepreneurs tend to benefit as well as a result.