What is private equity?
Put simply, private equity is a form of financing—an alternative investment in which a firm invests capital into a private (not publicly traded) company to help it grow.
Along with venture capital, private equity is part of a large financial ecosystem called private markets. Venture capital, the more familiar term to many people, typically funds younger or early-stage companies in exchange for equity.
Private equity is similar in structure, but different in purpose. It usually involves a large investment in a mature company, with the goal of transforming that company—streamlining operations, improving efficiency, modernizing systems, and ultimately increasing productivity and revenue so the business can later be sold at a profit. PE firms typically take a majority ownership stake in the companies they invest in.
How does private equity work?
PE investors work at private equity firms, raising and managing capital and identifying companies likely to become strong investments. To leverage investments, they create a fund and raise money from limited partners—often institutional investors such as pension funds, insurance companies, foundations, and high-net-worth individuals.
Once the fund reaches a target benchmark and closes, the firm makes one or more significant acquisitions. PE firms earn returns through management and performance fees, often taking about 20% of the profit when a company is sold.
Private equity is a long game. Turning around a stagnant or distressed business can take years—and success depends on executing real change, not just financial restructuring.
A quick look at PE history
The first leveraged buyout (an older umbrella term for what we now call PE transactions) is commonly traced back to 1901, when J.P. Morgan bought Carnegie Steel from Andrew Carnegie for $480 million.
Private equity became more visible—and controversial—in the 1970s and especially the 1980s, when it was often linked to hostile takeovers and buyouts that didn’t always benefit companies or investors.
Why PE has a stronger reputation today
Private equity now carries a far better reputation for three main reasons:
- More people understand the upside. Buyouts can strengthen companies, spur sustainable growth, and build long-term value—not just cut costs.
- Better deals are value-focused. The best firms prioritize genuine value creation for shareholders, employees, and the broader economy.
- Social responsibility matters more. PE firms increasingly commit to investing in organizations that align with ESG and responsible growth principles.
In today’s environment, PE firms must do more than stabilize a business—they must transform it. And transformation now requires digital modernization plus AI readiness.
The real growth lever: modernization + AI
The best PE firms understand the value of established employees and the power of better systems.
Digital transformation—especially legacy system modernization and business process unification—helps companies operate faster, smarter, and with fewer manual constraints. When paired with AI, modernization doesn’t just improve efficiency; it changes what the company is capable of.
AI-ready modernization enables:
- Automation of repetitive workflows
- Predictive insight (forecasting demand, churn, risk, and inventory needs)
- Operational intelligence from unified data
- Faster decision-making supported by real-time analytics
- Better customer and employee experiences through smarter tools
That’s why technology transformation is no longer an operational nice-to-have in PE—it’s a core value-creation strategy.
How Lukasa helps PE unlock growth
Lukasa is built to help PE firms unlock the growth potential of the distressed or stagnant companies they invest in—and maximize return value for investors.
Adaptable across the wide range of industries supported by private equity, we come alongside portfolio companies as true partners. With deep expertise in business and technology, our comprehensive team reimagines operations for maximum efficiency and scalability.
We modernize and integrate systems end-to-end, and we build custom enterprise software designed around how the business actually runs—not how a generic platform expects it to run.
Crucially, we also ensure modernization is AI-enabled from the ground up, so portfolio companies can:
- unify and govern data for AI use
- automate intelligently, not just mechanically
- deploy AI safely within real workflows
- scale innovation without rebuilding again later
Custom Enterprise Software Built for You. Unlocking a company’s growth potential—faster, smarter, and ready for what’s next.
