The number of UK equity investment deals is steadily rising each year, according to Beauhurst, a searchable database of the UK’s fastest-growing startups and scale-ups.
In total, 2017 equity investment deals were up on 2016, with the amount of cash invested also growing by 113% over the same period.
But why should businesses consider equity as an option to fund their growth plans?
Businesses want to grow for a variety of reasons – to invest in R&D, to enter new markets, to refinance and many more. There’s an equity match out there for each and every growth ambition.
From Angels giving a new business its first piece of funding, to floating your business on the public markets, there’s an equity option out there to suit the needs of rapidly growing businesses.
Businesses can position themselves on this simple scale to understand where they might fit in:
- Angel Investment – invest £15k-£2m in early stage companies
- Venture Capital – invest £2m-£20m in early stage companies
- Expansion Capital – invest £5m-£100m in profitable and growing companies
- Private Equity – invest £10m-£50m in profitable, mature companies
- IPO – a platform for unlimited equity capital raises from £5m to over £1bn
So if your business is in a position to grow, equity finance could be within your grasp and help you achieve your growth ambitions.
TOP TIPUse our tool to get a clearer idea of what options could work for your business.
Despite the temptations, the biggest draw of equity finance should never just be the money, it should be your investor. Rather than thinking of an investor as a soulless wallet, entrepreneurs are recognising the knowledge, expertise and contacts that the right partner can provide.
For example, Angels can offer advice and mentoring to early-stage businesses, while nominated advisors guide more mature businesses through their IPO process.
That’s why savvy businesses look for investors with sector and management experience that their business can benefit from.
In fact, the right investor can help your business achieve its growth ambitions in a sustainable, considered way. Their strategic guidance and know-how can help a business execute its growth plans and stay on track.
Always do your research on an investor. Find out what they can offer and make sure that matches your business’ needs.
When a business raises a loan from a bank, the bank is only concerned with its success as long as the bank loan is repaid. An equity investor however wants to maximise growth as much as possible.
Angels and VCs take minority shares and sometimes board seats in a business to enable this growth. While sharing equity can be off-putting for some businesses, a 10-30% minority share means that an investor has ‘skin in the game’. They, like the entrepreneur, are invested in the success of the business.
This means that they’ll work hard to help your business succeed. From networks to guidance, they want you to grow as much as you do. They’re less likely to pull the plug if things go badly and every bit as likely to cheerlead and support you to the end.
Get comfortable with the amount of your business you want to sell to an investor. Too much and you won’t be in control; too little and the investor is not incentivised.
When a respected investor places their time and money in your hands, you have a stamp of approval that can help your business achieve its goals.
You can access new partners and networks and, further down the line, your credibility for future investors is already in place. Your current investor may even be able to facilitate an introduction to your next.
In the case of an IPO, your business will also receive the credibility that comes with trading on the London Stock Exchange. With that comes an increased public profile – so your customers and competitors will know you’re a viable, serious business.
Keep customer letters and testimonials, speak to experts who could become champions and don’t be afraid to network, run workshops and raise your profile.
If everything goes to plan and your business meets its targets, you may very well want to set new ones and achieve another growth milestone.
Angels and VCs often invest multiple times in the same business, whilst an IPO allows businesses to list on the public markets again and again to raise capital. Funding is rarely a one-off process, which can help a business grow far beyond its expectations.
Have conversations about how many funding rounds your investor is prepared to support. Make sure your expectations are aligned before you sign term sheets.