Equity finance is a way of raising money from external investors in return for a share of your business. There are two main providers of equity finance for private businesses - venture capitalists and business angels.
If you have a business with high-growth potential, but you are finding it difficult to obtain bank finance then equity finance may be an option for you – follow these tips:
1. Target the right equity investor for your business: Approach investors who are seeking to invest in a business that is at your stage of development. Research potential investors that are interested in your sector and want to invest the amount of finance that you require.
2. Prepare a realistic business plan: Provide details of how you are going to develop your business, when you are going to do it, who will be involved and how you will manage the finances. Demonstrate that you're fully aware of the marketplace that you're operating in and show financial projections to support what you have said.
3. Value your business accurately: Potential investors will need to know what your business is worth before they consider investing in it. Calculate the value of your business’ assets, complete a market comparison with similar businesses and analyse your potential cashflow to provide an accurate value of your business.
4. Prepare to pitch: Deliver an informative, relevant and engaging presentation. Anticipate the questions and concerns that investors may have and show the benefits of their involvement in your business. Investors will be interested in your personality too, so be enthusiastic and passionate about your business and its potential, without being unrealistic about its prospects.
5. Communicate effectively and honestly: Communicate clearly about what your business is, what it is trying to achieve, how much money is needed to make it a reality, and what you will deliver and when. Answer all questions that are directed at you and be prepared for probing questions.
6. Negotiate investment terms: If an investor is interested in collaborating with you, you can start negotiating key issues including respective responsibilities, growth targets, the investor's exit strategy and service contracts. You should also specify how the investment relationship will be managed and what involvement they'll have in the company.
For further advice see secure equity investment.