Equity Finance

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Equity Finance is profits retained within your company or new finance invested by you, your friends or family. Equity finance can also be investment from outside sources, such as Business Angels or Venture Capital from professional investors. Long term share capital is invested in a business in return for a share of the business. Although this investment does not guarantee the investor any control over the business, some control can be granted to the investor should the owner of the business believe it would be beneficial. Equity investors are usually paid by way of dividend payments, these are dependent on growth and profit made by the business.

Business Angels:
These type of investors can help a business in its early stages of development. Finance is granted in return for equity.
Venture Capital:
This type of finance is implemented when a business is destined for huge success, businesses which are growing quickly and are destined to be floated on a stock market will have many people wishing to invest in shares of the business. There are three stock markets in the UK: London Stock Exchange being the main market at the top, Alternative Investment Market (AIM) and PLUS both of which are aimed at the smaller companies. Floating on the stock exchange is a way of raising capitaI, you can find private investors and raise you business profile. It can be costly and time consuming to put your business on the stock market, it is not always the best option for every business.

Before seeking equity finance for your business consider:
- Are you and your key people confident in the business' product/service, basically do you believe and know what is is that you are selling.?
- Does your business have a unique selling point (USP), something that makes it stand out from the competition.
- Do you have the drive to grow the business?
- Does your management team have sufficient knowledge and industry experience, have you gat the right people for the job?
- Are you prepared to give up a share in your business and if called for an element of control?

Advantages and disadvantages of equity finance
Equity finance can sometimes be more appropriate than debt finance, but it can place different demands on you and your business.

Advantages
- The funding is committed to your business and it's success.
- Investors only realise their investment if the business is doing well, they are paid through dividends only when the business makes any great propfit.
-The right business angels and venture capitalists can bring valuable skills to your business, they may have beneficial contactss and experience that can help your business grow. They could help with strategy and key decision-making.
- Investors have a vested interest in the business' success, ie its growth, profitability and increase in value. They will want it to become more and more successful just as you yourself will. You will have a common aim.
- Investors are often prepared to provide follow-up funding as the business grows.

Disadvantages
- Raising equity finance can be hard and very demanding, it can be costly and extremely time-consuming.
- Potential investors will seek highly detailed information on both you and your business, they will closely scrutinise past results and forecasts and will probe the management team.
- You may feel pressure when it comes to decision making, your investor may want to influence you to make the decision that they belive to be beneficial, you may not always agree with you investors. They may want to have a greater say when it comes to management decisions.
- Your investors will want to see regular reports and information on the progress of the company, and this can take time to prepare.
- Your share in the business will be diluted.
- There can be legal and regulatory issues to comply with when raising finance.