In May,

as largely peaceful demonstrations over the killing of George Floyd were condemned by some who focused on sporadic violence and the destruction of a few small businesses, the satirical website The Onion published a story headlined "Protesters Criticized for Looting Businesses Without Forming Private Equity Firm First." Private equity's dismal reputation stems mostly from a subset of buyout firms that invested in distressed companies, like Toys "R" Us, that then failed. The reality is that most U.S. private equity firms are interested in helping businesses grow, not grinding them to dust. To get the truth about PE, all you have to do is ask the founders who have used it to help them grow their companies while retaining an ownership stake.

So that's what we did.

Inc.'s second annual list of founder-friendly private equity firms shines a light on 50 shops that have had success supporting founder-led companies. To compile the list, we once again went straight to the source: entrepreneurs who have sold to private equity. It's a group that's been expanding for more than two decades. In the U.S., the number of PE-backed businesses has grown 30 percent compared with 2015, according to research firm PitchBook.

While new private equity investments have slowed meaningfully since the onset of the pandemic, PE firms, armed with record amounts of capital, are completing more add-on acquisitions, which fold businesses into existing portfolio com­panies. For entrepreneurs who are now struggling, merging with a PE-backed rival could lead to the best outcome.

"We find a lot of situations where a PE firm will do an add-on acquisition and keep the founder on board," says Dave Brackett, co-founder and CEO of private credit manager Antares Capital, which has helped finance acquisitions for more than 400 PE firms. One plus to having a PE partner today, he adds, is the chance to benefit from strategies developed by the other companies in the firm's portfolio. "They can take the lessons learned in some of them that are going well and share them quickly across those 20 to 40 portfolio com­panies to get those businesses performing more quickly," he says.

For founders, taking investment from a PE firm during a downturn doesn't have to mean selling at a discount. "You might think about a kind of delayed compensation arrangement in the form of earn-outs," says Ben Persofsky, executive director of the Center for Family Business at financial services firm Brown Brothers Harriman. "Then there's still a provision that you can get rewarded for a good performance, as if Covid never happened."

In this time of uncertainty, if you are considering private equity, first decide what kind of support you need, and then identify firms with that specific expertise. "The comment 'know your investor' is probably doubly true now, particularly if it's a family business or a business you've been running for a while and you really care about your people," says Tom Stewart, executive director of the National Center for the Middle Market. "You want to do your human capital due diligence as much as your capital due diligence."