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21/07/2015

Could equity investment help you to grow your business faster?

By Stephen Stolliday

If you’d like to grow your business faster and maximise its long-term value, a loan or debt investment might not necessarily be the best funding choice to help you achieve your goal.

Business owners and management teams often think that loans and debt investments are their only option and don’t consider the potential advantages of an equity investment.

Over the last decade equity investment or private equity has become far more widely accepted as an alternative funding source for management teams looking to grow their businesses more rapidly.

 While it isn’t right for all businesses, where a business has an experienced and well-balanced management team, a clear business plan focussed on growth coupled with strong products and services, equity investment could be the right funding option and the route to faster growth.

In fact, recent BVCA (British & Venture Capital Association) research has shown that equity-backed businesses grow at a faster rate than those funded by traditional sources, such as loans and debt investments. 

This combination of major funding, expertise and incentives can be very powerful. A study by The Boston Consulting Group found that more than two-thirds of private equity deals resulted in the company’s annual profits growing by at least 20%, and nearly half the deals generated profit growth of 50% a year or more.

‘More than Capital’

At Finance Wales we often describe equity investment as offering ‘more than Capital’ because of the expertise and experience equity investment professionals can bring on a local level.  Once invested, they’ll take an interest in your business, identifying the key issues you’ll need to focus on to develop the business and increase its value.

Is equity investment right for my business?

Here are some of the key advantages equity investment can offer:

  • Potentially faster growth
    In addition to their investment, equity investors can bring a wealth of new insights on all aspects of your business, helping you to make sure it’s best placed for growth.  They can help you to structure your Board more effectively, improve your internal systems and processes, especially in terms of reporting, governance and fiscal discipline.

  • Value creation
    An equity investor can help you to understand which strategies you’ll need to put in place to maximise your business’ long-term value and ensure it reaches its full potential.
    Moving into new markets or internationalisation are often good ways to develop your business and increase its value, for instance, and your investor will have the experience and expertise to help you to make the right strategic decisions.

  • Support for your objectives and growth journey
    As your backer, your investor will share your growth objectives and support you in the next stage of your company’s growth journey, whether it’s financing an acquisition, securing growth capital, allowing for an equity release or a planned exit where succession is an issue.

  • New opportunities
    Your business is likely to be one of a number in your investor’s portfolio and this can open up a wealth of business development opportunities including trade opportunities in new markets.

  • Enhanced credibility
    Having an equity investor backing your business can enhance its credibility and raise its market profile, making it more attractive to other investors when you want to raise additional investment as well as to potential acquirers.  It could also help convince customers and suppliers to trade with you.

One final point to consider
By securing equity investment you will be welcoming experienced investment professionals into your business who will help to shape your company’s future. As a management team you will need to have an open mind about the new ideas and suggestions they will bring if you are to take full advantage of their partnership.

To find out more about how Finance Wales can support your business through equity contact us.