03: Equity finance

Equity finance is usually appropriate for high growth unquoted companies looking for large sums of money from investors in return for a stake in their business. It can provide rapidly expanding companies with upfront cash without the burden of regular repayments.

Equity finance can come from a number of sources, including business angels – who are individuals specialising in investing in growing businesses – and, for larger sums, venture capitalists. These can both also provide your firm with expert skills, contacts and experience.

Sourcing business angels may require more effort than finding venture capitalists, but there is a national network. However, angels only invest in a small proportion of opportunities and will expect close involvement.

Venture capitalists back high growth strategies and will probably only be interested in investments worth over £1m. They will also often be looking for a trade sale or flotation in the short to medium term to realise their investment, and they may expect owner-managers to give up at least 20 per cent of their company.

The personality of an individual seeking an equity stake can be as important as the amount of money they are willing to invest. After all, a company selling a share of its business will need to work closely with the investor, so a good honest relationship is important.

If your company is seeking to raise large sums of equity finance, you will require specialist help and will need to enlist the services of a corporate finance adviser.