Finance Types

Equity Finance

Equity Finance

Equity finance involves raising money by selling a stake of (or shares in) a business, either to existing or new shareholders. This doesn’t mean you have to give up control of the business, as your investor can take a minority stake.

While sharing equity can be off-putting for some business owners, a 10 to 30 per cent minority share means that an investor is committed to the success of the business. They are investing for the medium to long term and should work with you to help your business succeed.

One of the biggest advantages of equity finance is the knowledge, expertise and experience that the right equity partner can provide. For example, angel investors often have expertise and knowledge of the sector they choose to invest in and so can offer invaluable advice and support to early-stage businesses.

Businesses will often use equity financing several times, enabling them to meet different needs (and attract a variety of investors) as they evolve. They may raise equity finance as the business develops, for example, at start-up initially and then to scale-up in future. Angels and venture capitalists often make multiple investments in the same business over time.

Many businesses use a combination of equity finance and debt finance to raise capital.

Shares in large companies can be listed and traded publicly on a stock exchange, such as the London Stock Exchange. Smaller companies will issue and trade shares privately with the help of lawyers and financial advisers. When a business raises finance publicly for the first time by ‘listing’ or ‘floating’ on the public market, it undertakes what is known as an initial public offering (IPO).

Some of the typical amounts of funding available at different business life stages include:

  • Angel Investment – invest £15k-£2m in early stage companies or for growth.
  • Venture Capital – invest £2m-£20m in early stage companies.
  • Private Equity – invest £10m-£50m in profitable, mature companies.

In addition, growth capital is available to invest £5m to £100m and IPO options are available for unlimited equity capital raising for £5m to over £1bn.