A specialized investment firm that buys companies or controlling interests with money it has raised from institutional investors, very wealthy individuals, and loans. The private equity firm then monitors the management of the company with the expectation that it will eventually go public or be acquired, thereby cashing out its investment. For details on equity compensation at companies controlled by private equity firms, see the related FAQ.

Employees or executives with stock grants at a privately held company that has private equity investors will want to see a waterfall analysis showing how funds would be distributed upon a liquidation event. This should indicate how much they would receive through their equity awards.