What is Equity Finance?
Equity Finance is share capital invested in a business for the medium to long term in return for a share of the ownership in, and in some cases an element of control or influence over the business.
The main advantage of Equity Finance (over trade or debt finance) is that it is not usually repayable at least in the short/medium term. Equity investors will expect a return typically over a 3 to 8 year period in the form of dividends (where appropriate) and from the sale of their share of the business when the business ‘exits’ via trade sale or flotation.
To prospective investors an Equity investment is the highest risk form of capital and as such they will expect the highest form of return in the medium to long term.
Is Equity Finance right for my Business?
The providers of Equity Finance will most often make the majority of their return when the business is sold or floated. If you are not contemplating the eventual sale or float of your business then Equity Finance will not be appropriate for you.
The providers of Equity Finance take the greatest risk of all prospective investors. As the providers of capital that is at the greatest risk they will expect the greatest return on their investment and to be capable of making returns of the magnitude required such investors are typically looking to invest in businesses with high and fast growth opportunities. If your business does not have the potential to grow and to grow quickly then Equity Finance is most probably not for you.
The nature and risk profile of Equity Finance means that the providers of this type of capital will often take an active interest and involvement (often non-executive) in your business. They will also place certain restrictions on the things that you will be allowed to do without their specific consent.
For businesses and managers that are focussed upon a strategy of fast growth for exit then the involvement/support of the Equity Investor and the limited restrictions that they will impose do not represent a material challenge but if you are the sort of business owner that would find this type of regime a challenge then maybe Equity Finance is not for you.
What are the Sources of Equity Finance?
How can Blue Sky Corporate Finance help you?
Blue Sky can help find the right investor(s) for your business. We manage the whole process from helping you to prepare to approach the prospective equity investor, to finding the investor, to negotiating the deal terms enabling you to do what you do best – running your company.