The term equity finance refers to share capital that is invested into a business for the medium to long term in return for a share of the ownership and in many cases an element of control over the running of the business. There are two main forms of equity finance available to businesses. These are business angels and venture capitalists. Equity finance is fast becoming one of the most popular ways of gaining start up finance for businesses.
Equity finance is the perfect example of true risk capital. This is because there is no guarantee that your investor will ever get there money back. Unlike lenders equity finance investors don’t normally have the rights to interest or to be repaid at a particular date. The way in which equity investors regain the money that they have invested into a company is through taking a share of the business and a percentage of the profit. It is because of this high risk involved in equity finance that if your business can not support growth rates of at least 20% you may not be able to attract equity funding. Equity investors are more likely to invest in someone they feel they can trust with a clear business plan and strategy.
As a business you need a clear business plan and strategy regardless of what type of business start up finance you are hoping to attract. You need a comprehensive business plan with a detailed marketing plan and your financial forecast. Your business plan needs to address issues such as how much funding you are going to need and how much control you are hoping to retain over your business. You also need to clearly state what you are using your business start up finance for as well as if your plans are realistic and if your venture is appropriate for outside funding. Whilst you are completing your business plan you also need to consider what potential investors may be concerned about. Without all of this; plus much more no potential investor will go near your business, planning is key if you are hoping to secure external funding.
If you are hoping to gain the financial help of an equity investor there are several questions that you need to keep in mind such as are you prepared to give up some of the shares within your business as well as part of the control over your business? Investors will expect to have some say in the way in which your business is run so you should be prepared for this. You also need to be confident in your business and the products and services that your business has to offer, one way in which you can do this is by identifying what your businesses unique selling point is. As well as this you also need to have the necessary industry skills and experience to drive your business.
For more information about what equity finance can do for your business get in touch with a business angel or venture capitalist today and they will advise you on what to do next.