Equity finance

Equity finance allows you to grow your company by exchanging shares for cash. The money can help supercharge your business to reach its full potential.

What is equity finance?

Equity financing is where an investor puts money into your business in exchange for shares or some control of the company.

Investors get a portion of your company’s future profits. And if you ever sell the company, they will get a share of the sum paid.

Equity funding or equity finance is an alternative to a business loan or another form of debt finance. The benefit is that you will not have to pay interest or repay what’s borrowed, and you will also get the benefit of another person’s experience and guidance.

It is common for businesses to require some form of external funding to grow and reach their full potential. Along with taking out a business loan, equity finance can allow you to raise cash in a cost-effective way while getting the benefit of others’ expertise.

Thoughts from Matt

“There are many ways for a business to grow and taking on debt isn’t always the answer, especially for early stage companies. If you don’t want to borrow money but have ambitious plans for your business, then equity finance should be seriously considered.

The key to equity finance is finding the right backer. At Funding Guru, we’re used to building businesses and we are certain our network of talented entrepreneurs can help take your business to the next level.“

Matt Haycox
Founder and CEO, Funding Guru

How equity finance works?

Equity finance is where you sell shares in your business in exchange for cash. This money may allow you to expand into new markets, hire more staff, buy new equipment or invest in branding and promotion.

Shares can be sold to individual investors, a group of investors or a private equity or venture capital fund. As your business grows, so will the value of your investor’s stake.

You can do multiple rounds of equity finance as your company evolves, usually at increasing valuations as your company grows.

For investors, their ultimate aim is to make a profit on their cash injection – either through regular dividends or through a sale of the company.

But for many investors, it’s not just about the money. They are often just as motivated by the idea of supporting an exciting start-up that is taking strides to solve key problems in society and make people’s lives better.

Investors are likely to invest through the government’s Seed Enterprise Investment Scheme (SEIS). This scheme offers tax relief to individual investors backing new UK companies.

At Funding Guru, we have access to a wide network of investors looking to support UK businesses.

Funding Guru can also take a stake in your company through equity finance. We’ve invested in dozens of businesses including online retailers, restaurants, fitness chains and property developers.

Who uses equity finance?

Equity finance is growing in popularity

A record £18.1bn was invested in UK companies through equity finance in 2021, according to the British Business Bank’s Small Business Equity Tracker 2022.

This was nearly double the amount invested the previous year, with deals up 17% to 2,616.

	2019	2020	2021
Number of equity finance deals	2,002	2,244	2,616
Total investment value	£8.3bn	£9.6bn	£18.1bn

Source: British Business Bank’s Small Business Equity Tracker

Equity finance vs debt finance

Equity finance is where a stake in your business is exchanged for a sum of money. The money does not have to be paid back, but investors get a return through dividends and a potential sale of the business in future.

Debt finance means you borrow money, typically through a business loan, and you repay the money – with interest – within an agreed timescale. Once the money has been repaid, the relationship with the lender typically ends, unlike equity finance where you are likely to have a longer-term relationship.