Equity Finance for small businesses
Equity financing involves the sale of your company’s shares and giving a portion of the ownership of the company to investors in exchange for funds. The proportion of your company that will be sold depends on how much has been invested in the company, and what that investment is worth at the time of the financing.
Swoop has built relationships with numerous equity finance providers, and we’ve outlined some of the key types of equity investors below. To
For more information and to discuss your options for small business funding, either register or get in touch at firstname.lastname@example.org and let the friendly Swoop experts walk you through your options – we’ll ensure you’re only put forward to the most appropriate funding options.
Funding a startup business with an Angel Investor
An Angel Investor is usually an affluent or high net worth individual who provides financial backing and investment for small startups or entrepreneurs, usually in exchange for ownership equity. Angel Investors are often found among an entrepreneur’s family and friends.
Angel Investors usually give funds to a startup at the beginning of the company’s life, where risks of new business failing are relatively high. The financial backing that Angel Investors provide may be a one-time investment to help the business get off the ground, or an ongoing payment to support the company through the difficult and early stages.
Angel Investors are essentially opposite to Venture Capitalists as they put their focus on helping startups get off the ground and take their first steps, rather than focusing on the profit they may get from the business. They will usually look to be investing between £50k to £500k.
Angel Investors are also known as business angels, informal investors, angel funders, private investors or seed investors. Some Angel Investors invest through online crowdfunding or may organise themselves into ‘angel groups’ or ‘angel networks’ to share investment capital.
Angel Investors, unlike Venture Capitalists, typically use their own money. Angel Investors who seed startup companies which fail during their early stages, stand to lose their money – because of this, there are SEIS and EIS schemes available to encourage this investment.
The Swoop team of equity experts would love to discuss your small business funding requirements. Please register here or contact us.
SEIS – Seed Enterprise Investment Scheme
Funding a small business with SEIS
SIES was launched by the UK government in 2012 to encourage investors to finance startups by providing tax breaks for backing projects that may otherwise be considered too risky.
SEIS is the younger sibling of the EIS and focuses on gaining funding for small, new businesses. Both the EIS and SEIS are designed to encourage investors to invest in small companies, with the SEIS providing greater tax advantages to compensate for the higher risks associated with investing in very early stage businesses.
To qualify for SEIS, the small company requiring funding must have a place of business in the UK, have traded for no more than two years, have fewer than 25 employees and gross assets of less than £200,000. A company can receive up to £150,000 in SEIS funding.
The tax relief offered helps soften the blow should the business not succeed – but aims to increase the rewards when things go well. The maximum tax efficient investment into SEIS qualifying companies is £100,000 per individual in any one tax year. There are various tax incentives offered to SEIS investors including up to 50% claimed back as tax relief.
SEIS was designed to boost economic growth in the UK by promoting new enterprise and entrepreneurship. The SEIS scheme is now one of the most revered government-backed schemes ever created.
To discuss whether your business could be eligible for SIES or any other funding, contact our team of experts or get registered.
EIS – Enterprise Investment Scheme
Funding a small business with SEIS
Enterprise Investment Scheme EIS) is a series of UK Tax reliefs which were launched in 1994.
EIS seeks to provide funding for small businesses and young companies to assist with their growth. It does this by offering tax reliefs to individual investors who buy new shares in the company.
Under EIS a business can raise up to £5 million each year, and a maximum of £12 million over the company’s lifetime. This also includes amounts received from other venture capital schemes. The business being funded must receive investment under a venture capital scheme within 7 years of its first commercial sale.
The money raised by the new share issue must be spent within two years of the investment, or if later, the date the business started trading. The funds should be used to grow and develop the business, but not be used to purchase all or part of another business.
Small businesses seeking EIS funding must follow the scheme rules to ensure their investors can claim and keep EIS tax reliefs relating to their shares. Tax reliefs will be withheld or withdrawn from their investors if they do not follow the rules for at least 3 years after the investment is made.
Investors can claim EIS relief on up to £1m-worth of investments in qualifying companies per person per year (this cap rises to £2m if they’re investing in knowledge-intensive businesses, such as those in the life sciences sector).
Get registered now, or contact us to discuss EIS or other funding options with our team of experts.
VCT – Venture Capital Trust
Funding a small business with VCT
Venture Capital Trusts (VCTs) are primarily found in the UK where they were first introduced to support small business growth. VCTs are listed companies that are run by a fund manager and which, in turn, invest mainly in smaller companies that are not quoted on stock exchanges.
A VCT is a way for individual investors to gain access to venture capital investments via the capital market. Both VCT and EIS investments must be made in companies that have objectives to grow and develop.
Numerous VCTs are listed on the London Stock Exchange. Their shares are uniquely structured to offer tax efficiencies to the investors. To facilitate investment in small businesses with a view to boosting economic growth, the government offers generous tax benefits as an incentive for individuals who choose to invest in VCTs. These tax benefits make VCTs attractive to higher and additional rate taxpayers.
VCTs are also attractive for investors seeking to invest in a diverse range of venture capital investments.
Register your business here, or get in touch to discuss the funding options for your small business.
Funding a small business with Crowdfunding
Crowdfunding is the term used to describe the practice of a person or a company raising funds from a large number of people – the ‘crowd’.
Traditionally, financing a business, project or venture involved asking a few people for large sums of money. Crowdfunding switches this idea around, using the internet to approach potentially millions of possible funders. Crowdfunding has been fuelled in recent years by the easy accessibility of crowdfunding websites and social media, bringing investors and entrepreneurs together. Crowdfunding sites generate revenue from a percentage of the funds raised.
Swoop works with both Crowdcube and Seedrs to help businesses identify when they are a good fit for crowdfunding as a form of small business investment. Crowdfunding can be highly beneficial for B2C businesses with a mass market appeal – and investment rounds can also be great marketing campaigns too. Businesses also tend to achieve higher valuations through crowdfunding.
Register here or get in touch to discuss Crowdfunding or other funding options for your small business.
Funding a small business through Venture Capital
Venture capital is financing that investors provide to small businesses that are believed to have long-term growth potential.
Venture capital generally comes from well-off investors, investment banks and other financial institutions. Venture Capital is not always monetary and can be provided in the form of technical/managerial expertise.
Swoop works with a large range of Venture Capital and Private Equity funds which invest purely on an economic basis. Businesses need to be able to show large exponential growth to be a good match for this kind of small business funding, as venture funds will be looking to exit each opportunity at a high multiple to satisfy their investors. This type of finance is probably the most aggressive form of investment and investments tend to range from £2m to £50m.
The potential for above-average returns is an attractive payoff even though it can be risky for investors. Venture capital funding is increasingly becoming a popular and essential source for raising funds for new companies or ventures (under two years operating), especially if they lack access to capital markets, bank loans or other debt instruments. Generally, the investors will get equity in the company, and, therefore, a say in company decisions.
Register your business here, or get in touch to discuss Venture Capital or other funding options for your small business.
Funding a small business through Family Office investment
Family offices are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family. Many family offices offer budgeting, insurance, charitable giving, family-owned businesses, wealth transfer and tax services.
Family offices can be defined as single family offices or multi-family offices which are sometimes referred to as MFOs. Single-family offices serve one affluent family while multi-family offices are more closely related to traditional private wealth management practices which seek to build their business upon serving many clients.
Swoop has a good network of family offices around the world which work in a similar way to the growth and venture funds, with some offices preferring a general investment strategy while others build their fund around a certain niche e.g. property, food and beverage, manufacturing etc.
Family offices tend to offer more patient capital than growth and venture funds as the need for immediate returns isn’t as great due to the fact that they don’t have a range of investors to appease. Typical investments are quite varied and can range from around £500k – £15m.
Get registered now, or contact us to discuss family office funding or other small business funding options with our team of experts.
Tier 1 investment
Funding a small business through Tier 1
Tier 1 is one of the immigration routes under the UK’s points-based visa system available to individuals from outside the European Economic Area (EEA).
Tier 1 is aimed at ‘high-value migrants’ such as investors and entrepreneurs who have funds available to set up or invest in a business in the UK, graduates with an endorsed business plan and those deemed to have the exceptional talent within their field of expertise. As such, the visas which make up the Tier 1 immigration route offer relatively favourable terms and eligibility requirements for visa holders.
Swoop works with a number of Tier 1 providers who help match foreign investors with UK businesses looking to invest in the UK market in exchange for a visa.
Investors must place a minimum of £200k into the business to be deemed eligible by the home office. Tier 1 can be a great form of investment for businesses looking to increase working capital without having to give away a huge amount of equity and also gain exposure to another market through that investor.
Register your business here, or get in touch to discuss Tier 1 or other funding options for your small business.