If your business needs money to grow, you’ve the option of selling a stake in exchange for investment. Equity finance investors will have a claim on your future earnings but, in contrast to a loan, you don’t pay any interest, nor do you have to repay capital.
Equity finance could suit your business if you have an expansion plan or project that lenders such as banks aren’t willing to support, or if you want to avoid loan payments.
Your journey from start-up to successful business could involve multiple rounds of equity financing from different types of investors, e.g. business angels, venture capitalists and private equity funds. Equity finance has two obvious advantages for businesses:
private investors can bring additional skills and knowledge to your business – plus a useful network contacts
investors, not least because they share in any upside, are motivated to make your business a success – and will be more likely to provide follow-up funding.