In exchange for cash, equity finance investors will often expect a stake in your business and may also demand further rights, such as a share of future profits or some level of decision making control over business operations.
If your business attracts interest from equity finance investors you might conclude there is already big potential in your business. If so, why give up equity at a time when your business appears primed to succeed? This may be a legitimate concern, but it’s not necessarily a deal breaker. The cash injection could be the boost you desperately need, and equity finance investors may also offer additional skills, experience and resources to help your business. In this respect the finer detail of the agreement may define the true value of an equity finance deal.
Business Link Business Adviser Peter Weeks says “It’s worth talking to equity finance investors to see where they are coming from. Ask questions, find out how the deal will work in practice. But come prepared, you have to sell yourself too. A professional pitch and a firm grasp on your finances will help if want to impress. It’s a two way dialogue”.
Regardless of such judgements, how you approach the decision to consider equity finance may depend on practical considerations such as your alternative finance options. If your growth plan prohibits interest payments on borrowing, or you simply can’t raise the levels of investment you need from friends, family, grants, loans, or elsewhere, equity finance could be your best option.
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