Take the pain out of finding investors for your business

Equity finance is the method of raising finance by selling shares (equity) of your company to existing shareholders or new investors who will share in the profits. The people who buy the shares then become your shareholders.

Equity finance can be a good option for new or small businesses that are finding it difficult to get a business loan.

Equity financing works by selling a company’s stock in exchange for cash. The proportion of your company that is sold will depend on how much has been invested in the company and what the business is worth at the time of financing. As your business grows, so will the value of the investor’s stake in your company.

Businesses can choose multiple rounds of equity financing from different types of investors, such as business angels, crowdfunding, or venture capitalists (VCs).

While equity financing requires you to sell a stake in your business in return for funds, debt financing involves borrowing money and repaying it with interest added, with the most common form being a loan.

Unlike equity, debt does not involve relinquishing any share in ownership or control of your business. However, equity financing is generally viewed as the less risky of the two as there is no obligation to pay back the money injected into your business, so there are no monthly repayments and the money invested can be put towards helping the business grow.

Businesses can benefit from both debt financing and equity financing, but businesses that require a large amount of money to grow and scale quickly will usually find equity financing more suitable, while those that need funds quickly to finance everyday expenses and operations may prefer debt financing.

Debt financing is usually (though not always) cheaper than equity financing because equity investors take on more risk and therefore demand higher returns. The interest you pay on debt financing is also tax deductible, whereas dividends paid to shareholders are not.

In addition, once the loan is fully repaid, your company will have no further obligation to the lender, making it a cheaper option than equity financing for profitable companies.

• It can be a more suitable option than debt financing if you have a poor credit history
• There’s no additional financial burden on your company as there are no monthly repayments
• Private investors can bring valuable skills, experience and contacts to your business
• Your investors will be motivated to make your business a success and will be more likely to provide follow-up funding.

• Equity investors will own a portion of your business and in some cases may have a say in management decisions which can lead to conflict
• You may have to split the profits with your investors – although this may be worthwhile if you are benefiting from the experience and financial value they bring
• Raising the required funds can be time-consuming.

Does what it says on the tin. A pitch deck is a brief presentation used to ‘pitch’ your business plan to potential investors. It aims to give them insight into your business idea, the market opportunity, revenue model and so on.

There are several ways and  tools you could use to create a pitch deck. Some can be a hassle, others can be expensive.

This is why Swoop's pitch deck builder is so valuable - we take the time, effort, and stress out of creating a perfectly-crafted pitch deck that investors will love.

GET 10% OFF THE PITCH DECK BUILDER WITH CODE SWOOP10.

Read more: Tips on how to create a pitch deck.

The Midlands Engine Equity Fund (MEIF) provided commercially focused finance through small business loans, debt finance, proof of concept and equity finance funds. It was a collaboration between the British Business Bank and 10 Local Enterprise Partnerships (LEPs) in the West Midlands and South East Midlands.

The MEIF provided over £400 million of investment to support small and medium business (SME) growth in the Midlands and was part of the government’s aim to boost the region’s economy and support the growth of smaller businesses.

The Midlands Engine Investment Fund has now completed its investment phase and is transitioning to the Midlands Engine Investment Fund II which launched in March 2024.

The new Midlands Engine Investment Fund II will deliver £400m of investment to growing companies in the region.

The Northern Powerhouse Investment Fund (NPIF) is a collaboration between the British Business Bank and Local Enterprise Partnerships in the North of England, offering business loans and equity finance to small business across the North West, Yorkshire, the Humber and Tees Valley.

NPIF is now in it's second iteration, NPIF II, which offers £660m (up from £500m) and has opened up to include the North East.

Read more about NPIF II here.

Businesses will generally attract a different form of investor at the various stages of their evolution in order to meet financing needs. We’ve outlined the main options below:

Family and friends: As the name suggests, a friends and family round is an investment round wherein the funds are provided by friends and family of the founders. The source of funds come from people you already know and most importantly trust you.

Business angels:Business angels or angel investors are private individuals who are prepared to invest their own money into startup or early-stage businesses in return for a share of the company’s equity.

Seed Enterprise Investment Scheme (SEIS):A government scheme that focuses on gaining funding for small, new businesses and provides tax advantages to those who invest.

Enterprise Investment Scheme (EIS):A government scheme that seeks to provide funding for small businesses and young companies to assist with their growth by offering tax reliefs to individual investors who buy new shares in the company.

Equity crowdfunding: Where funds are raised from a large number of people – ‘the crowd’.

Venture capital:Venture capital funds look to invest larger sums of money than business angels in return for an equity stake in startups and early-stage businesses. It is most suited to high-growth businesses with long-term growth potential.

Venture Capital Trusts (VCTs): These are listed companies approved by HMRC to invest in or lend money to unlisted companies.

Private equity: Suitable for established private businesses. Private equity funds give your business money in return for a large share in your business.

Initial public offering (IPO):An IPO marks the first time a company sells shares to the public and is also known as floating or listing on the public markets.

You might also want to consider family offices.

If your business is just starting out, the most likely route to equity financing is through angel investment and those investing through the government’s SEIS.

As your business becomes more established, you may find interest in EIS investors, venture funds, or family offices.

Convertible debt is where money is invested in a company in exchange for shares to be issued at a later date – often when the company has raised finance from other investors. In return for investing early, convertible equity investors are given a discount on the price of the shares issued to other investors.

Before deciding whether equity finance is right for your business, it’s worth asking yourself the following questions:

• Are you prepared to give up a share in your business and a level of control over management decisions?
• Does your team have the experience and knowledge to drive the business forward, or would you benefit from having access to business contacts and management expertise?
• Does your business have a poor credit history, making it harder to get a bank loan?

If you’re happy to give up a share of your company in return for investment in your business and you would benefit from expert knowledge and experience, equity finance could be right for you.

If you’ve decided equity finance would suit your business, register with Swoop to speak abut how we can assist in match you with the most relevant equity finance for your business; our team are more than happy to offer you some free advice on your options.