Expansion capital

Finance for growth. Learn more about the benefits, risks and opportunities, and where to find this investment.

Expansion capital can allow your business to:

  • create new products
  • enter new markets
  • acquire other businesses
  • invest in new systems and equipment

The aim is to help your business grow as much as possible.

An expansion capital firm invests large sums of money into your business in return for an equity stake (and usually a seat on your board). This allows you to grow faster with the benefit of the investors' strategic help and advice.

Expansion capital is typically suited to businesses that want to accelerate their growth without giving up control. Investors typically plan for a three-year to five-year holding period, but they can invest for longer if it will help your business grow.

You can appoint an external adviser to support you through the process, but not everyone chooses to do so.

Retain control

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

Help and advice

The investor will take a seat on your board, so you can expect direction and guidance 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.

Charges and fees

There may be legal costs involved during the due diligence process. Any advisers you hire may also expect a retainer.

Uncertain growth

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

Less control

While you won't give up complete control, your control over the business will be diluted.

About your business

  • Business stage:  Post-revenue, profitable and growing
  • Annual turnover:  £5m–£100m
  • Growth rate:  Between 5%–30%
  • Sectors:  All
  • Regions:  All

 

About the finance

  • Purpose of finance:  Create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth
  • Amount available:  £2m–£20m (depending on the percentage 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
  • Time it can take to get finance:  At least 3 months but can be up to a year

Ask an expert: Alistair Brew, investor at BGF

Growth potential

Expansion capital investors look for companies with a scalable product or service. Your business needs to have a plan in place, as well as the ambition to achieve it.

Alignment of interests

The business, your existing stakeholders and the investors all need to be on the same page.

Vision and self-awareness

Investors want to see both the big picture and the granular details. An overarching vision. You, as the founder of the business, need to understand what your value drivers and operational levers are.

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 your company’s board. At the same time, you may also appoint an independent non-executive director. 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 expansion capital fund has invested in your business, you and any other 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-related changes to your business.

This infographicLink opens in a new window shows you the typical journey to securing expansion capital.

To learn what steps you need to take to ready your business for expansion capital, use this checklist.

 

“The expansion capital world is very broad, and there is 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

Other finance options

Click here to visit Angel Investment
Equity
Angel Investors act as mentors and invest their own money in early-stage businesses for a share in the company.

Angel Investment

Investors like

Early-stage businesses with a turnover of less than £5m. They invest in any sector but like businesses with a scalable business proposition.

You're looking for

Between £15,000 and £500,000 within two to six months from a single Angel for working capital, product development, entry into new markets, to build teams or increase sales. Large Syndicates may offer up to £2m.

Find out more about Angel Investment
Angel Investment
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
ABOUT Angel Investment
Purpose of financessss Working capital, product development, entry into new markets, build teams, increase sales
Amount of finance Usually £15k-£500k, but large Syndicates may offer up to £2m
Duration of finance Typically 3-8 years
Cost of finance None
Time of finance 2-6 months
About your business
Business stage Generally early stage, pre-revenue or pre-profit
Annual turnover Less than £5m
Sectors All sectors, but especially suitable for companies with a scalable business proposition
Regions All regions
Click here to visit 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.

IPO

Investors like

Established and growing businesses, with predictable revenues and a proven track record. Smaller companies, including those who are pre-revenue, can also be attractive depending on the proposition.

You're looking for

Unlimited equity capital. Up to £200m on AIM or even larger sums on the Main Market and exposure to a wider pool of investors.

Find out more about IPO
IPO
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
ABOUT IPO
Purpose of financessss Acquisition, product development, new markets
Amount of finance Up to £50m on AIM; unlimited on the Main Market
Duration of finance 10 years +
Cost of finance You will need to appoint an accountant, a law firm and usually a PR firm. Assume this will cost 8% of the amount you hope to raise
Time of finance IPO processes takes 10-12 weeks; but planning and negotiations can take 12-18 months
About your business
Business stage Established and growing
Annual turnover Over £5m; this does not apply to healthcare businesses
Sectors All sectors; healthcare and tech may be able to list earlier in their lifecycle than other sectors
Regions All
Click here to visit Business Loans
Debt
A business borrows money from a loan provider such as a bank and then pays it back with interest over an agreed period.

Business Loans

Lenders like

Businesses with assets and a trading history that meet their eligibility criteria.

You're looking for

Finance quickly, with decisions on applications made quickly.

Find out more about Business Loans
Business Loans
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
About your business
Business stage Established with assets and a trading history
Annual turnover Any
Sectors Any
Regions Any

Regional support

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