Is my business appropriate for this type of funding?
- Equity finance is a way of raising funds for your business by selling your shares
- The investors will wish to make a return by way of dividend income, capital repayment and a capital gain - usually over a 3-7 year term
- Venture capital (VC) is provided by institutions - perhaps the best well known is 3i
- Business angels are individuals, who provide equity also and these are sometimes less formalised arrangements than those from VCs
- Usually an investment agreement is drawn up, most likely requiring both sides to obtain legal and accountancy advice - the company usually pays for both sets of advisors if the deal completes
- The British Venture Capital Association (BVCA) has 192 members and in its "Report on Investment Activity 2006" its research showed that there had been £10.2bn invested in the UK in 1,318 businesses
- This equates to 71 in every 100,000 VAT registered businesses in the UK
- The average investment in 2006 was £2.2m.
- The BVCA comment that "Certainly one of the most important attributes is the desire [of] these companies' directors to raise private equity and to have external shareholders. Many companies in the UK are ‘lifestyle' businesses, where they may not be suitable for private equity or they may have the potential to grow rapidly but the owners are content to use the business to finance their own immediate lifestyle and do not wish to give up any share in their company in order to increase its value."
It is crucial if you are seeking funding for your business that you seek advice about the most appropriate form, structure and source of finance. VC or private equity may be appropriate, however you need to be aware that your business needs to have high growth potential with the ability to substantiate your assumptions and financial projections.
The member firms of The Corporate Finance Network can provide you with this advice. They specialise in advising SMEs about raising finance - be aware that this is a very specialist area and not all accountants have this knowledge.