Expansion Capital

Expansion Capital helps businesses create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth. The aim is to help them grow as much as possible.

 

"We want to find post-revenue businesses with strong management teams and a strategy for growth. We’re looking for entrepreneurs with ambition.”

Alistair Brew Investor @ BGF

 

The total amount of Growth Capital funding increased from £2.4bn in 2016 to £5.5bn in 2017

Beauhurst, The Deal: Equity investment in the UK 2017

Key requirement

You must be confident you can deliver significant growth once you’ve received a cash injection

Key benefit

You can retain control of your company

Key consideration

You need to be confident you’ve found the right funding partner to help you grow

What is Expansion Capital?

An Expansion Capital firm invests large sums of money into a business in return for an equity stake. This allows the business to grow faster with the benefit of strategic help and advice from additional investors.

Expansion Capital is typically suited to businesses who want to accelerate their growth without losing control of their business. Investors typically plan for a three-to-five year holding period, but they can invest for longer if it will help the business grow.

Who's involved in Expansion Capital?

  • Expansion Capital Investors The investor and their team, who may take a seat on the company’s board
  • Advisers Businesses can appoint an external adviser to help them through the process, but not everyone chooses to do so

“The Expansion Capital world is very broad. There are a huge variety of circumstances. I’d urge businesses to talk to investors early in the process, even if they’re not ready for investment yet.”

Alistair Brew Investor @ BGF

What are the benefits of Expansion Capital?

Retain control

You can access large sums of money and the investor will receive a share of your business (usually between 10-40%).

Help and advice

The investor will take a seat on your board, so you can expect steer from a business expert.

Repeat funding

Follow-on investments are common in the Expansion Capital world and are part of an ongoing dialogue with your investor.

Scale that suits you

You and the investors can set goals and strategies to grow at a pace that suits the business.

What are the risks of Expansion Capital?

Charges and fees

There may be legal fees involved during due diligence. Advisers may also expect a retainer.

Growth

There is no guarantee that investment will result in growth and success for your business.

Control

Your control over the business will be diluted.

Is Expansion Capital right for you?

About your business

Business stagePost-revenue, profitable and growing
Annual turnover£5m-£100m
Growth rateBetween 5-30%
SectorsAll
RegionsAll

About Expansion Capital

Purpose of finance Create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth
Amount of finance £2m-£20m (depending on the % of the shareholding).
Duration of finance 3-5 years
Cost of finance Due diligence and legal fees will apply. If you appoint an adviser, they will expect a retainer fee
Time to finance Minimum of 3 months but can be up to a year

“We look for a business that considers both the big picture and the finer details,”

Alistair Brew Investor @ BGF

Ask an Investor - what do you look for in a business?

  1. Growth potential We’re looking for companies with a scalable product or service. A business needs to have a plan in place, as well as the ambition to achieve it
  2. Alignment of interests The business, existing stakeholders and fund need to be on the same page
  3. Vision and self-awareness We want to see the big picture and the granular details. Founders need to understand what their value drivers and operational levers are. But we also want to see overarching vision

Expansion Capital considerations

  • Cost Due diligence and legal fees may apply, and advisers often expect a retainer as a sign of commitment
  • Time Preparing and applying for funding can be time-consuming
  • Board seats A fund will usually put one or more of the investment team on the company’s board. The business may also appoint an independent non-executive director too. You need to make sure you can all work together
  • Control If your company doesn't meet its targets, some fund investors may take control of future decision making
  • Dilution After the investment has taken place, initial shareholders are likely to own a smaller percentage of the company
  • Wide-ranging change You need to be open to making strategic, operational and management changes in the business

"With Expansion Capital, we are taking a view on the future. That's inherently risky. So, before we invest we need to know that a business has vision and strong financial projections."

Alistair Brew Investor @ BGF

What's your next step?

In partnership with, BGF

Other finance options

Corporate Venture Capital
Equity
Corporate Venture Capital is an investment made by a large company into a smaller business, in return for a share of that business.
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Peer-to-Peer Lending
Debt
A business borrows money through an online platform and pays it back with interest over an agreed period.
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IPO
Equity
An IPO (or Initial Public Offering) is when a business sells shares via the public markets, such as the Main Market or AIM operated by the London Stock Exchange.
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