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Investment Finance

Investment finance is one of the most common types of finance for small and medium businesses. Funding through investment can be a useful way to access long-term finance to grow your business in Cheshire and Warrington.

What is investment finance?

Investment finance, also commonly known as equity finance, is a funding source that is made available when you raise money by selling shares in your business.  This either to your existing shareholders or to a new investor. This doesn’t mean you must surrender control of your business, as your investor can take a minority stake.

What can investment finance be used for?

Investment finance can be used at various stages of your business journey, from start-ups or established companies. To access investment finance as a start-up, you will likely need to have something unique such as protected intellectual property or a successful track record running previous businesses.

As such, investment finance is something that can be accessed more than once, if you are prepared to sell further shares in your company and an investor is willing to invest more.

What are the types of investment finance?

The most common types of equity finance that are used by businesses are:

  • Family and friends
  • Angel investors: High net worth individuals who use their own money to invest in small businesses, in return for this investment, they will usually take a minority equity stake in the company. Business angels can invest on their own but will often invest as a group of angel investors (a syndicate).
  • Venture capital: Venture capitalists will invest into early-stage businesses to help them grow and will also often offer strategic advice, taking a position on the board.
  • Corporate venture capital and private equity: The same principal as venture capital, except the investment will be from a large corporate, who invest in smaller businesses. Often the investment is managed by another firm, who has been appointed to invest on behalf of the large corporate. These investments may be from pension funds of large corporates.
  • Equity crowdfunding: Crowdfunding is mostly used by start-ups and businesses not listed on the stock market. The ‘crowd’ are individual investors who invest via an online investment platform.

 

How can I access investment finance?

Depending on what type of investment finance you are thinking of accessing there are a variety of ways to access it, including from:

  • Family and friends and other personal networks
  • Online crowdfunding platform
  • Individual investors (angel or venture capitalists)
  • Angel networks
  • Investment fund networks and companies

How do I decide if investment finance is right for my business?

Like many critical business decisions, it can be best to speak to an expert when considering whether investment finance is right for your business. The Growth Hub can help you understand the implications of investment finance and can help you consider what other options may be suitable.

 Advantages

Disadvantages
  • The funding is committed to your business.
  • Your business doesn’t have to maintain payments for interest etc. like debt finance.
  • Some investors are likely to bring value through their skills, contacts and experience.
  • Investors are quite often prepared to consider providing further investment as the business grows

 

 
  • Investors may expect a higher return on investment rate than the interest rates of debt finance.
  • Your investors will have some ownership of the business and may want to be part of the decision-making processes.
  • Finding the right investor and getting your business investment ready can be time-consuming and could require some finance to get the business investment-ready.
  • Your business may have to meet certain legal and regulatory obligations on reporting.
  • The ongoing relationship with an investor may need a certain time commitment from you to provide regular updates and information for the investor.

How do I decide if investment finance is right for my business?

As previously mentioned, it is best to speak to an expert when considering which investment finance option is most suited to your business. The Growth Hub can help you understand the specific types of investment finance available and guide you to consider which type may be most suitable and can also advise you on how to prepare your business to be in the best position before seeking investment.

The Growth Hub can also help you explore a range of suitable providers of investment finance, some questions for you to consider when deciding what type of investment finance will work for you are:

  • How much funding do you need and what will you use it for?
  • How much of the business are you willing to sell?
  • Will you be able to make the commitment to the time required to provide reports and management information to your investors?
  • How involved will you want/will you accept your investors to be?
  • How long will it be before they see a return in investment?
  • Are you and your business investment-ready?

If you need support to understand more about investment finance or want to discover what investment funding options are most suitable for your business or how you can prepare your business before pursuing this type of funding then please contact the Growth Hub.