49 Tips

Tips on Equity Finance

Submitted By: Tommy Black in Finance Tips category

Equity finance means the money that a company raises by issuing shares. Equity finance can be made available for your business at any stage. You can use it at start up, expansion, acquisition or for management buy outs.

Where to look for equity finance?

Individuals that invest small amount of money in your business are called business angels. They invest in your business only if they find that it has high growth potential. It is very beneficial to you if you are new in business or have early stages of business expansion. A business angel may get involved in your business and bring business expertise that will help you to grow.

Venture capitalists are large companies that invest heavily into your business. Both of these come under private equity. There are many sources that can provide you with equity finance.

Private individual investors/ business angels
Venture capitalists
Professional private equity firms
Social development funds

How do you attract equity finance?

To attract investors your business should have certain qualities that the investors are looking for.

A business with a lot of growth potential
A business idea that has clear aims and achievable objectives
Strong and confident management that can motivate and drive the business forward
A well prepared and profitable business plan

Finding suitable investors

You should approach the right sources of finance. You should conduct a through research and get expert advice before making a list of investors. Investment will depend on a number of factors that are mentioned below.

It will depend on the stage of your business.
Value of the investment that you seek for investment
Specific industrial sector of your business
Ability of your business idea to attract investors

Steps in getting equity finance:

Finding a suitable investor:You should locate a suitable investor for your business venture. For this you will have to do some research and prepare a list of suitable investors before approaching them.

Presentation:You will have to present your business plan very clearly. You should convince them about your management and experience in the field. You should display confidence and motivation skills during presentation. Many business ideas fail to get investment in spite of having good growth as they fail to convince investors.

Show that you are investment ready:Once the investor gets interested in your business, they will want to know the minute details. If you are already trading they will check your accounts, contract, customer list and business practice.

Investment agreement:The investor will draw an investment agreement when they are ready to invest. You will have to take professional advice as you are selling a part of your business. There may be some negotiations and consider the required changes

Investor’s role:The main aim of your investor is to get maximum profit from their investment. They do this by selling their part of share in your company. You should be prepared and discuss a preferred exit strategy while you discuss investment in the initial stages. The most common exit strategies involve:

The sale of business
Founders buying back investors shares
Company flotation in stock market

Equity finance tips help you to understand the important things in equity finance. It guides you in finding equity finance, private equity and other aspects of investment.

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