Equity

Another way to raise funds to grow or develop your business is to sell part of your business to a third party. This is referred to as selling equity in the business. There are four main types of investor who may be interested in getting involved in your business.

• Individual Business Angels
• Investment Syndicates
• Venture Capital
• AIM

It is important to take proper financial and legal advice before beginning equity discussions.

Who you choose to invest in your business can have a profound affect on your future success and profitability. If you want to maintain complete control and do not want to be answerable to any outside influence then selling equity in your business is probably not for you. However if you realise that you do not have all the skills needed to take your business to the next level and are willing to give up a little control and/or profit to acquire those then it can be a mutually beneficial option.

Obviously there is likely to be more paperwork and legal ramifications when raising equity than there is associated with seeking debt funding. With a loan the bank or financial institution never owns part of your business. The loan is provided over a fixed term and is secured against assets or personal guarantees from the directors. In the case of equity the investor does own part of your business and therefore will be privy to information and will have decision making powers appropriate to the level and type of investment.

It is very important that you know all the implications of this type of capital raising and are comfortable with the worst-case and the best-case scenario. Remember if your business turns into a runaway success then your equity partner will share in those profits and you will not make as much as you would have on your own. However you may not ever be a runaway success without the expertise that an equity partner will bring. Make sure you get the right advice and structure the deal accordingly.