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.
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.
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.
There is no guarantee that investment will result in growth and success for your business.
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
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.
Due diligence and legal fees may apply, and advisers often expect a retainer as a sign of commitment.
Preparing and applying for funding can be time-consuming.
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.
If your company doesn't meet its targets, some fund investors may take control of future decision-making.
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.
You need to be open to making strategic, operational and management-related changes to your business.
“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.”
Other finance options
|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|
|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|
|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|
|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|
|Business stage||Established with assets and a trading history|
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