Venture capital

Investment to help young businesses grow. Alongside funding comes strategic advice from an experienced professional.

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Venture capitalists (VCs) put money into early-stage businesses to help them grow. As well as money, businesses can expect strategic advice from an experienced new board member.

VC funds often invest in cycles of between five and seven years. They expect businesses to grow significantly during this time – and make a return for the fund. Sometimes, funds will hold on to an investment to help the business grow even further.

Businesses can often expect further investment ‘rounds’. Seed round investment is typically offered for proof of concept and can be several hundred thousand pounds. Series A investment onwards can be many millions.

What are the main venture capital schemes?

EIS (Enterprise Investment Scheme)Link opens in a new window, SEIS (Seed Enterprise Investment Scheme)Link opens in a new window and VCT (Venture Capital Trusts)Link opens in a new window encourage investment into UK businesses. EIS and SEIS give tax breaks to investors, as an incentive to invest.

Meanwhile, VCTs help take away some of the risk of investing by pooling investors' money and spreading it across a range of businesses. The result is more investment in UK businesses.

Relevance

Venture capital is an option for a wide-range of companies. Profit, and in some cases revenue, are often not a requirement in the VC world.

Strategic guidance

Get support from experts and entrepreneurs.

Large injection of cash

You can get millions of pounds to expand your business, without giving away a controlling stake.

Regional opportunities

VCs regularly travel to regions across the UK.

Equity and growth

There is no guarantee that your business will achieve growth as a result of the investment.

Competition

Venture capital investment is in high demand. VC funds may not be investing when you are looking.

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

 

About the finance

  • Purpose of finance:  Acquisition; research and development
  • Amount of finance:  £1m or more, depending on the funding round
  • Duration of finance:  5–10 years
  • Cost of finance:  None
  • Time to finance:  6–12 months

Ask an expert: Tim Hames, director general at the British Private Equity and Venture Capital Association (BVCA)

What do investors look for in a business?

There is a split between the investors whose first instincts are to identify a sector and those who look first and foremost at management teams.

Sector-led investors look for revolutionary technological change or demographic positioning. Other VCs consider whether the founders have the vision and expertise to grow a business.

A useful tip for entrepreneurs is to think about what sector they’re in and then work out if the product within the sector is the unique selling proposition (USP) or if they are the USP.

Board seats

VCs often expect representation on your board in exchange for funding and support.

Strong management team

The VC fund needs confidence in your leadership team, as with early-stage businesses there's very little else for the investors to go on.

Understand your investor

VCs look for different things, so increase your chances of success by doing your research on the fund.

Mentality

VCs expect some businesses to fail. Understand early that it's about relationships as much as it is about making money.

Economic cycle

Competition on funds depends on the economic climate. Sometimes funds are not investing much at all, while at other times your business may have lots of offers on the table.

Either you or the VC can make the first approach.

It often takes up to a year to do the deal, but this can vary. The earlier VCs can start the journey, the better. Sometimes an investor will talk to entrepreneurs for months or years before they actually invest.

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

After a momentous 2020, 2021 will see businesses still needing funds and VCs still seeking opportunities to invest. Learn five things VCs are looking for in 2021

 

“Venture capital is an incredible partnership between financial professionals and founders. Many VCs are often ex-entrepreneurs, so their advice can be invaluable.”

David Mott Chair of the Venture Capital Committee at BVCA

Other finance options

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Equity
Using an online platform, investors buy shares in a company to help it grow.
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Equity Crowdfunding

Investors like

Businesses of any size who sell their product or service in a compelling way on Crowdfunding platforms.

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Either large or small sums of finance to create new products, for acquisition, to develop products, fulfil projects or enter into new markets.

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Equity Crowdfunding
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 Equity Crowdfunding
Purpose of financessss Creating new products, acquisition finance, product development, project fulfilment, entry into new markets
Amount of finance Up to £4.3m without a prospectus, higher with a prospectus
Duration of finance Dependent on the business being funded
Cost of finance This is platform specific. Platforms often charge a success fee (usually a percentage of the amount raised) with a listing fee. Others will charge a percentage of profit
Time of finance Once your documents are in order, it can take as little as a month
About your business
Business stage Pre-revenue through to more established businesses
Annual turnover Any
Sectors Any
Regions Any
Learn moreabout Equity Crowdfunding
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A business borrows money from a loan provider such as a bank and then pays it back with interest over an agreed period.
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Finance quickly, with decisions on applications made quickly.

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Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
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Business stage Established with assets and a trading history
Annual turnover Any
Sectors Any
Regions Any
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A business secures finance against its existing assets; these can include invoices and also machinery, property and even intangible assets such as IP.
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Asset-Based Lending

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Established businesses with assets and a trading history.

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Raise finance from untapped assets on your balance sheet.

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Asset-Based Lending
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 Variable – dependant on asset values
Sectors Any
Regions Any
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Find a finance partner

Regional support

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