Guide

Equity finance

Equity finance: the equity gap

The equity gap is a term used to explain the gap a company experiences in funding as it moves up the ladder of different finance sources.

For example, some businesses require much greater funding than that which can be provided by business angels, but do not need the levels of funding venture capitalists would consider. The gap between these two finance situations is known as the equity gap.

Businesses in this situation may wish to approach private equity firms for help. These are organisations that invest and manage investments and they tend to focus on management buy-outs and buy-ins.

The government provides a multi-million pound equity finance scheme to close the equity gap by providing Enterprise Capital Funds (ECFs).

ECFs are commercial funds that invest a mix of private and public money in small, high growth businesses seeking up to £2 million in risk capital - see British Business Bank information on ECFs.