Equity Finance for UK Businesses

Looking to grow your company but don’t have the cash? Maybe you don’t want to take on a loan at an early stage in your business. Equity finance could be your answer.

Why Choose Equity Finance with Funding Guru

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. By exchanging shares for cash, you can use the money to supercharge your business with insights from seasoned investors.

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 can be an attractive alternative to a business loan or another form of debt finance. With equity funding for businesses, you will not have to pay interest or repay what’s borrowed unless you sell up, and you will 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. Equity finance allows you to raise cash in a cost-effective way while gaining invaluable guidance from entrepreneurs with years of experience. The key is finding the right investor for your business.

Matt Haycox

Founder and CEO, Funding Guru

Matt’s Thoughts on Equity Financing

“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.“

How Does Equity Finance Work?

Equity finance is the process of selling shares in your business in exchange for cash. What you choose to do with this money is largely up to you, but solid investments could be: expanding into new markets, hiring more staff, buying new equipment or investing into branding and advertising.

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 shaking up traditional markets, taking strides to solve key problems in society or potentially making people’s lives better.

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

Who Uses Equity Finance?

Equity finance can be a powerful tool for businesses at various stages of growth. Whether you’re just starting out or ready to scale, here are the types of businesses that typically turn to equity funding.

Start-ups who need a leg-up:
Start-up businesses often need cash injections in their first years of business. Learn from us and gain the capital you need.
Established businesses looking to expand:
If you’re looking to take the next big step, and have a track record of years in business, equity funding could be an exciting option for you.
Companies that have been turned down for a business loan:
Perhaps other rounds of funding haven’t gone your way. Selling your shares could be a cost-effective way to get the funding you’re looking for.

What are the stages of equity financing?

If you decide to go down the equity finance route, you’ll go through the next few stages:

Pitching to Investors: Communicating Your Vision

Think in equal parts about making your potential investors visualise your business goals and getting across the core points investors care about: business performance, growth potential and projected return on their capital investment.

Negotiation: Structuring the Deal

Negotiation of an equity finance deal is the most pivotal part of the process. It determines how much capital you raise, what percentage of your business you share, and how hands-on your investors will be.

Tip: If investors’ knowledge and guidance is a pull for you going for equity finance over a business loan – you’ll want to be sure that they are a good culture fit for your business.

Funding & Closing: Cash In, Opportunities Unlocked

After investors have checked your finances, dotted the ‘i’s and crossed the ‘t’s on the contract, you’ll receive the funding you’ve worked for and the invaluable knowledge of your investors.

Once your funding lands, you can drive momentum for the next phase of your business. Whether it’s expansion, new tech, hiring top talent or consolidating your costs – the opportunities are endless.

Pros & Cons of Equity Finance

Equity finance can offer valuable benefits, but it’s not without trade-offs. Here’s a quick look at the pros and cons to help you decide if it’s the right move for your business:

Pros of Equity Finance	Cons of Equity Finance
No upfront collateral	Give up a % of the say in your business
Gain knowledge from seasoned investors	Give away a % of your dividends
No debt or loans	Lose a % of the sale value of your business upon exit
Cost-effective means of gathering funding

Different types of Equity Finance

Equity finance comes in several forms, each suited to different business stages and goals. From hands-on angel investors to high-stakes private equity, here’s a breakdown of the key types of equity funding available.

‘Business angels’ AKA Individual Investors:
Business Angels are individual investors that are looking to invest in early-stage businesses with high potential. Angel investors usually take a keen interest in the companies they hold shares in.
Venture Capital (VC):
VC Firms specialise in big-ticket investments into fast-growing businesses. They’re looking for high returns and tend to be more hands-off than individual investors.
Mezzanine Financing:
Mezzanine funding is a hybrid financing option for business owners who aren’t afraid to take risks. It’s a loan structure offered by specialist investors which can convert into business equity if the loan isn’t repaid on time.
Private Equity:
Private Equity firms tend to buy out companies but do invest in some businesses for substantial shares. PE can be a good option for those looking to restructure an established company.

Equity Finance vs Debt Finance

Both equity finance and debt finance can provide businesses with the funding they need to expand. Both hold advantages and risks for business owners.

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. Investors can also have a say in how your business operates, and provide guidance from their experiences. This can lead to some business owners losing control of their companies if they lose their majority shares.

Debt finance means you borrow money, typically through a business loan, and you repay the money – with interest – within an agreed timescale. These loans can either be secured (using assets as collateral against the loan) or unsecured (typically with a higher interest rate).

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.

Testimonials

"We have worked with Funding Guru for varied lending needs for over 10 years now. From arranging invoice finance, to leasing new vehicles, to cashflow assistance - Matt and his team never disappoint. When we first started our business securing finance was far from easy but Funding Guru provided solutions that few others couldn't and they have continued to support us as our business has developed and grown to an 8 figure turnover."

"Coming out of COVID our business, like most, wasn't in a great place. We hadn't been able to trade for over a year and finding finance options was proving difficult for us. Funding Guru was prepared to look at what a successful business we had been prior to the start of the pandemic, and what great opportunities lay ahead for us. The facility they provided solved our cashflow needs and allowed us to concentrate on being the UK's premier race team!'

"I knew Matt long before he was a lender, when he was building his own businesses and finding creative ways to finance his growth. So as soon as he started Funding Guru I knew there was only going to be one person to talk to about my own business finance requirements!"

Equity Financing Frequently Asked Questions

Which Businesses are Suitable for Equity Finance?

Equity finance is suitable for a range of businesses, but especially for growth-hungry companies that don’t have the capital or assets to go down traditional debt financing routes.

Whether you’re a start-up looking to raise your first capital injection, or an established business wanting to expand into new markets but don’t have the money liquid to do so – equity financing could be a great option.

Is Debt Financing Cheaper Than Equity Financing?

Not necessarily. While you don’t have to give up equity with debt financing, fixed repayments and interest can restrict your cash flow in the future, and put your collateral at risk if you default on payments.

With equity financing, you’re giving up a share in your company. If all goes well and your company increases in value, the value of that share will also increase. In this scenario, equity financing will be the pricier option.