For the majority of established SME businesses and start-ups, raising mainstream funding can be a difficult and frustrating process especially when there is little or no track record or security to offer a potential lender. In many cases institutional funding may simply not work for the business. In such circumstances it may be more beneficial for a business to seek investor funding rather than accrue additional debt funding.
There are many elements for a business to consider when seeking investor funding. High on this list may be the value added experience of the investor, their knowledge and route to market over and above the capital funding requirement. It may also be that an investor already owns a business that could complement the product(s) that has been developed and therefore provide that important route to market.
From an investor’s perspective it is important to understand how secure the proposed investment is. An investor will potentially enquire as to what protection the company has sought for its product or service, does the business operate in the technology or other business sector where their product(s) that can be patented or does the business operate in a business sector where there are very few barriers to entry (e.g. tourism) and therefore little protection for an investor.
Who can benefit from Equity Investment?
- Businesses that have been rejected for funding by the Banks.
- Both start-up and established businesses that have developed a product that has reached certain milestones and are now ready for further investment.
- Many sectors are considered however, funding to the “tech” sector is considered more desirable due to the ability to protect intellectual property rights.
- Businesses looking for outside expertise and / or a route to market for their product both domestically and overseas.
So, what is any investment likely to cost you?
Investors are typically seeking a share of the business in return for their investment. Ultimately investors are looking to increase the value of their capital investment by a factor of 3 or 5 times over a period of 3 to 5 years. At the point in time the investor wishes to recover the value of his investment, the business may potentially be sold to a larger competitor or the management team may exercise an option to buy back the shares from the investor at the agreed cost.
Every case is different and in some instances additional fees or interest may be charged. However typically the investor(s) are simply looking to grow the capital value of their investment by helping the business to reach its growth aspirations.
The search for the right financial solution begins & ends with Cranfield, so contact us today.