It has been said that nearly 61% of businesses are launched with either private capital or capital that is invested into their business by family and friends but investment doesn’t have to stop with merely just your family and friends, which is why equity finance exists.
Equity finance is cash that is invested into your business in return for a share of your business. These investments of cash never have to be repaid and don’t have interest attached to them. Equity finance is true risk capital as there is no guarantee that the investor will get their money back at all and these investments are not tied to assets that can be removed from your business should it fail.
The way in which investors get a profit from their investment is the fact they have a share in your business. This share means that investors either get money that is generated either through a sale of the shares once the company has grown or through dividends, a discretionary payout to shareholders if the business does well.
There are several types of equity finance such as business angels and venture capitalists. Each type of equity finance varies in the amount of money that is available for investment and the process of completing the deal.
If your business can support a growth rate of a least 20% you are more likely to be able to get equity finance. If you can’t generate a growth rate of at least 20% in your business then you are unlikely to be able to gain equity finance. It is the idea of control and the prospect of higher returns if your business is successful that attracts people to invest in your business
Sadly however many people are still highly reluctant to seek the help of equity finance as they see the idea of it as ‘relinquishing control’ of their business. Many small businesses are especially reluctant if their business is growing fast. As a business owner you should ask yourself the following questions below making any decisions about choosing to use equity finance:
• Are you prepared to give up a share of your business as well as some of its control?
• Are you and your management team confident in the business and the products and services that are on offer?
• Does your business have a unique selling point?
• Do you have drive to grow your business?
• What industry experience and knowledge does your management team have?
You should also consider the following when it comes to obtaining equity finance:
• How much funding do you need?
• How much control are you hoping to retain?
• How long do you need your funds for?
Each business should investigate the options that are open to them when it comes to finance. Equity finance is medium to long term finance and is the perfect type of finance that is open to small businesses, especially if you are an entrepreneurial business. Entrepreneurial businesses are what private equity investors are mainly interested in. This is because they have aspirations and a high potential for growth.
If you are interested in the use of equity finance it is important that you speak to a financial team who can put you in touch with people who will be able to put you in touch with the right investors.
By: Helen Cox
Posts Tagged Invest
As a homeowner, there will always come a time when your property needs some significant work. This could be a few years after the house was built or as soon as you buy the property from a previous owner. Your main concern is bound to be how you are going to finance the work.
There are options available to finance your home repairs that mean you won’t have to make too many sacrifices in your lifestyle and personal expenses. You could look at taking out a mortgage if you own your home outright, or if you already have mortgage arrangement, you could look into a home equity loan.
If you decide to take out a mortgage, you can choose between a fixed or variable interest rate. The first is less risky as the interest rate will remain the same for the entire life of the loan. However, if interest rates are particularly high when you take out your mortgage and are likely to decrease, you might want to consider a flexible rate, which will change with shifts in the overall economy.
Think carefully about how long you are likely to remain in the property to determine the amount and loan period. If you can take a larger sum than you require for your home improvements, you can invest some for potential later repairs or improvements. Whatever mortgage you choose, your initial payments will be mainly interest, with the proportion of capital increasing as time passes. You can choose only to pay interest in the first year or two to reduce your initial outgoings.
A home equity loan will be based on the amount of capital you actually have in your home. This can be seen as the value of your home minus the capital amount you still owe on your mortgage. A lender will also look at your credit history and status. If you have sufficient equity in your home, and good credit, it should be simple to apply for a home equity loan. Interest rates are low as lenders are taking very little risk, and they believe that the home improvements the loan is financing will add to the value of the property.
You should shop around and get a number of quotes to compare when you are taking out a mortgage or home equity loan. Remember to include your regular bank, as being an existing customer can have advantages and qualify you for rates and offers you will not get with a new provider.
Although some home repair projects are unavoidable, many home improvements are not entirely essential. You should always balance how much you will be spending on a project including the interest on the loan, with the benefit you will get in terms of increased property value and quality of life. A loan may seem a large commitment, but if the home improvement project will add greatly to the value of your property the long term investment may be worth it.
By: Clinton N. Maxwell
Venture Capital is a type of private equity that works on the basis of cash being invested into businesses in exchange for a share of a business. Venture Capitalists don’t however just offer their skills to a business; they also provide managerial and technical expertise.
Venture Capital is popular among new companies and new ventures. Many of these Venture Capitalists who invest in your business have a background in being chief executives at firms and investment bankers as well as connections with other firms in corporate investment and finance spaces.
Venture Capital is a viable source of financing for a business. Venture Capitalists have the option of investing at any stage of business, whether it is business start up or investing in an established business; however more typically than not a Venture Capitalist will invest in a more established and on going business.
When is comes to the type of businesses that Venture Capitalists invest in they are free to invest in which ever business sector they please, even though if you look at the trend of Venture Capitalists you will see that the main businesses that Venture Capitalists invest in are high tech such as research and development, electronics and gaming industries. Venture Capitalists also deal in large sums of money, which often run into millions of dollars.
Most Venture Capital arrangements have a fixed life of ten years and it should be noted that a Venture Capitalist isn’t suitable for all entrepreneurs; same as not all businesses get the opportunity to use the help of a Venture Capitalist. The Venture Capital market is very selective; a Venture Capitalist may only invest in one in 400 hundred opportunities that are presented to them, so if you want to attract a Venture Capitalist you need to have a well documented business plan and you need to be able to demonstrate how your business will be able to bring in enough capital after the help of a Venture Capitalist has been invested in your business.
If a business does posses the qualities that a Venture Capitalist is looking for, such as a solid business plan, a good management team, investment and passion from the founders, a good potential to exit the investment before the end of their funding cycle and target minimum returns in excess of 40% per year, you will find it easier to get a Venture Capitalist to invest in your business.
A Venture Capitalist will also consider aspects such as:
• Is your product or service commercially viable?
• Does your business have potential for sustained growth?
• Does your management team have the ability to use this potential and control the business through growth phases?
• Does the possible reward justify the risk involved in the investment?
• Does the potential financial return meet the investment criteria of the Venture Capitalist?
Almost three million people in the UK are employed by companies backed by venture capital, according to the British Venture Capital Association. Many of these companies might not be in existence without the injection of cash and guidance venture capitalists provide.
By: Helen Cox