Equity finance
Equity finance is a way of raising share capital from external investors, in return for handing over a share of your business.
The two main forms of equity finance for privately owned businesses are:
We have long established contacts with a number of Angel Networks, High Net Worth individuals and Venture Capitalists.
Venture capital
Venture capital (also known as private equity finance) looks to invest large sums of money in return for equity. Venture Capitalists (VCs) typically invest in businesses with:
- A minimum investment need of around £2 million, though many smaller regional VCs may invest from £50,000
- An ambitious, but achievable, business plan
- Significant earning potential and therefore a high return on their investment within a specific timeframe (exit strategy), e.g. five years
- A product or service that offers a unique selling point or other competitive advantage
- A well rounded and experienced management team - although VCs tend not to get involved in the day-to-day running of the business, they often help with a business' strategy
- A proven track record of sales, i.e. not pre-revenue - for this reason, VC's generally do not consider start-ups for investment.
If you are successful in securing finance from VCs, they provide not only money but, just as importantly, they also bring significant expertise, contacts and experience to your business.
However, securing a deal with a VC can be a long and complex process. You'll be required to draw up a detailed business plan, including financial projections for which you're likely to need professional help and, if you get through to the deal negotiation stage, you'll have to pay legal and accounting fees, whether or not you're successful in securing funds.
Business angels
Business angels are individuals who invest in high growth businesses in return for equity in the businesses. Angels may invest on their own or as part of a network/syndicate. Most invest in businesses that they have an affinity with and bring valuable first-hand experience of either working in a small business, or running their own business venture. Though some are more hands on than others, they will often make available their own skills, experience and contacts to the business.
Business angels will typically be looking for the following
- An individual investment of between £10,000 and £1,000,000
- The potential for high returns
- Good early stage development or expansion
- A presence in a particular sector.
Unlike VC's, business angels often make an investment decision quickly. However, you will still need to draw up a professional and tailored business plan and be prepared to present to a number of potential investors.
Some Angel Networks may be eligible to have their investment funds matched by the government from its Enterprise Capital Funds (ECFs) within its ‘Finance for Business' product. ECFs are commercial funds, targeted at small and medium sized enterprises and invest a combination of private and public money against a share of equity in small, high growth businesses seeking up to £2 million of equity finance.
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As my business has grown they have continued to help with financing which enabled me to not only acquire the office but also refurbish it to a high standard. They introduced me to the benefits of invoice discounting and answered all my questions and those of my accountant thoroughly. I cannot recommend them highly enough and would encourage any company requiring business finance to use them.
Angela Middleton, Managing Director, Middleton Murray
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