Equity Finance
BAFI (Business Angels Finance International LLP) are specialists in raising the right finance for your business.

Equity Finance involves selling part of your business (‘shares’) to an investor. The investor will share the risk and take a share of any profits or losses that the company makes. Advantages include:

investors can bring new skills and opportunities to the business, eg marketing or exporting overseas
you won’t have to pay any interest, or repay all the capital invested
you share the risks of the business with your investors
Disadvantages

Disadvantages include:

  • it can be a much more demanding, expensive and time-consuming process than raising debt finance
  • you’ll own a smaller share of your business (although your share could eventually be worth more money if your business succeeds)
  • you may have to consult your investors before making certain management decisions
  • only limited companies can sell shares, so you can’t raise money in this way if you’re a sole trader or in a partnership
    it you underfund on an equity funding round it can be difficult to go back to investors for additional funds

Equity finance can be the only option available to high risk businesses, particularly start-ups that have no revenue streams or assets to secure loan finance against. It can also be extremely useful for more established businesses that have ambitious growth plans that require investment ahead of increased revenues. Equity funding often works best alongside a credit funding facility. Whilst equity funding is not repayable it is difficult and time consuming to go back to investors for further funds, whilst it may be easier to extend or establish new credit lines with commercial lenders. Sources of equity finance include

  • Family and friends (especially for early stage businesses)
  • Business Angels
  • Family Investment Offices
  • Venture Capital Funds (VC’s)

When raising equity funding it is vital that you take good professional advice from lawyers and accountants with experience in this area (not all have this experience so check). If you get the company/share structure and/or shareholder agreements wrong at this stage it can be extremely expensive to put right later. The government offers significant incentives to investors in early stage businesses through the SEIS and EIS schemes. It pays to look into these schemes before starting the fund raising process as it can make investing in your business more attractive to private investors. Again you need to take professional advice. We have successfully raised equity finance for many businesses and would be happy to discuss the how this form of finance perhaps combined with debt funding could work for your business.

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 Business Angels Finance International LLP is registered in England and Wales. Company number: OC387517. Registered Address: Suite 64, 123 Stratford Road, Solihull B90 3ND