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Equity finance

How should I identify the right equity investor for my business, what value can they bring over and above finance, how long does it take and how much does it cost?

Equity finance involves selling a part of your business (shares) to an investor, who then becomes a shareholder and receives a cut of the profits, as well as their share of sale proceeds in the event of an “exit” (sale) of the business. Equity investment means you won’t have to pay interest or repay debt, although private equity will typically require a preference share that does repay interest at exit. Only limited companies can raise finance by selling shares, meaning sole traders and partnerships cannot seek this form of finance – so if you’re one of them, skip this section.

There are different types of investors, the main types being: friends and family, angel investors (typically wealthy individuals or families), venture capital and private equity. The main difference between which one you should have relates to the life stage of your business. Many startups receive initial funding via angel investment, crowdfunding, or bootstrapping (see our guide to bootstrapping here) via friends and families. Venture capital firms would typically invest after this stage, unless they were specifically targeting pre-revenue firms and sectors. This often happens a series of rounds (e.g. A, B, C), while private equity invests in more established businesses with proven cash flows and profitability. Businesses seek private equity or venture capital investment for a number of reasons: product investment, sales and marketing, accessing new distribution channels, operations improvement, international expansion, hiring of new staff, and so on. Investors typically provide more than just finance to businesses, as their experience and networks will help complement, guide and mentor executives at different stages of the firm’s growth.

Businesses seek private equity or venture capital investment for a number of reasons: product investment, sales and marketing, accessing new distribution channels, operations improvement, international expansion, hiring of new staff, and so on.

Investors typically provide more than just finance to businesses, as their experience and networks will help complement, guide and mentor executives at different stages of the firm’s growth.

The key thing to remember is equity investment comes at a price. It can be expensive, time consuming and may involve you losing control of your business in terms of all the major decisions, including selling up. Find out if it’s right for you using the resources below.

Key:   paid for service     registration required     official

Equity investment

UK Business Angels Association

Peruse a database of equity investors from UK Business Angels Association.

WHEN: You’ve decided on equity finance and want a long-list of potential investors by sector, investor type and investment level.

WHY: Rather than searching for them yourself, you can simply review this list to efficiently target investors.

WHAT: An up-to-date database and search tool for equity investors.

OTHER: An online and pdf guide on what to include in a business plan for equity investors from UK Business Angels Association.

Equity investment

NI Business

Balance the pros and cons of equity investment from NI Business.

WHEN: You’re considering approaching an equity investor.

WHY: You want to be sure you’ve covered off all the risks and advantages of equity investment.

WHAT: A short, but comprehensive article on the pros and cons of an equity investor.

OTHER: A short summary on equity investor pros and cons from The Harford.

Angel investors

London Growth Hub

Understand what business angels are from London Growth Hub.

WHEN: You’re looking to approach an angel investor and need a thorough overview of what to expect.

WHY: Helps you efficiently manage your time and effort with investors and ensures you match their needs.

WHAT: An insightful overview of how to approach business angels.

OTHER: Angel investors versus venture capital from Virgin Start Up.

Enterprise Investment Scheme (EIS)

Syndicate Room

Find out what the Enterprise Investment Scheme is from Syndicate Room.

WHEN: You want to know if EIS can help you and and apply for it if it does.

WHY: A UK government initiative, The Enterprise Investment Scheme (EIS) assists younger, higher-risk businesses in raising finance by offering interested investors generous tax reliefs. Knowing about this type of investment – and how you can use it to your advantage – will broaden your options.

WHAT: A full overview of EIS with worked examples.

OTHER: See advice on how to apply for EIS from Gov.uk.

OTHER: Look at our advice on crowdfunding.

Private equity

BVCA

Learn about private equity from British Private Equity and Venture Capital Association (BVCA).

WHEN: You’re actively considering private equity or venture capital and need to know the whole process.

WHY: To ensure you appreciate the considerable effort required to secure funding through this route.

WHAT: An insider’s guide from the private equity and venture capital industry trade body.

OTHER: Private equity summary guide from Growth Business.

OTHER: Weigh up private equity’s pros and cons from Money Soldiers.

OTHER: Demystify private equity (a long but extremely comprehensive read) from accountancy body BDO.

Private equity

BVCA

Use these deal and model templates from BVCA.

WHEN: You’re approaching a private equity deal and need to know the industry norms for legal documents.

WHY: To better equip you with the types of legal document you’ll see and help ensure your terms are fair and reasonable. However, these templates are not a substitute for specialist legal and commercial advice.

WHAT: Templates for a venture capital or private equity deal.

OTHER: Private equity summary guide from Growth Business.