|Equity finance is a way of raising capital from external investors in return for handing over a share of your business. This may take many forms, including a share of future profits, but is most frequently associated with sharing the ownership of the business to some degree.Equity finance can sometimes be more appropriate than other sources of finance, eg bank loans, but it can place different demands on you and your business.The main advantages of equity finance are:
- The funding is committed to your business and your intended projects. Investors only realise their investment if the business is doing well, eg through stock market flotation or a sale to new investors.
- You will not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities.
- Outside investors expect the business to deliver value, helping you explore and execute growth ideas.
- The right business angels and venture capitalists can bring valuable skills, contacts and experience to your business. They can also assist with strategy and key decision making.
- In common with you, investors have a vested interest in the business' success, ie its growth, profitability and increase in value.
- Investors are often prepared to provide follow-up funding as the business grows.