By Shaun Fooy, Senior Manager UK Network - North East England & Tees Valley, British Business Bank

Shaun is a Senior Manager at the British Business Bank and works with businesses and intermediary networks across North East England & Tees Valley to provide access to finance and funding programmes. As part of his role, Shaun gathers information about the North East economy and business community to feed back to the British Business Bank, HM Treasury, and other government departments, to help influence business support and finance and funding programmes. He also monitors trends in the region around access to finance, and challenges to raising funding. Shaun has worked in the banking sector for more than 33 years.

What is equity investment?

Equity investment, to put it in simple terms, is when a company sells a stake in its business for an amount of money. The person buying that stake then owns a percentage share of the business. There’s often a misconception that equity funding is ‘giving away’ a stake in the business, but that isn’t the case. What you’re doing is selling a stake for a cash investment to develop and grow your business. This form of funding tends to work best for limited companies.

Why choose equity funding?

There are a few reasons why businesses consider equity funding over other sources of funding. If, for example, you want to grow your business quickly, equity investments provide access to a significant amount of cash that doesn’t carry any immediate repayments – unlike a loan. Another reason for exploring this type of funding is access to mentoring and support from the investor themselves. Very often investors will put themselves, or a representative, onto the business’ Board. From the investors’ side this helps protect their investment, but from the business’ side investors can help make connections, open new doors, and grow the business. Investors bring a lot more than just money.

Of course it’s important to remember that at some point investors will want their money back. This normally happens when the business is sold or it can happen when there’s reinvestment and the original investor can withdraw.

One piece of advice I’d like to share if that it’s really important to get along with your investors. It’s a bit like a marriage; don’t walk down the aisle if you don’t think it’s right. You’ll be spending a lot of time working with them, and it’s important you get on. Don’t just see it as a financial transaction; think about it carefully.

Businesses that benefit from equity funding

Businesses that can really benefit from equity funding tend to be early stage businesses that are trying to develop a product or service, or later stage, loss-making businesses that could become profitable again with some cash injection. Early stage businesses with no clients, or non-revenue generating businesses, are unlikely to be approved for a loan because how can you service the debt? Startup loans might be an option, but if you need significant investment - like hundreds of thousands of pounds - you can’t service that as a loan – mainstream lenders won’t provide that.

An area where equity funding is unlikely to work is within a family business. These types of company structures, with multiple family members, are unlikely to accept a third party. Equity funding works best for businesses trying to scale and grow quickly, and for those trying to get technology off the ground and then scale it when it hits the market.

Finding equity funding

The first step in finding equity funding is to have some investment readiness training. When you pitch to investors you have to get your messages across quickly and clearly. What makes your business stand out? What is unique and special about you? I’d recommend joining an incubator or accelerator programme; there are lots available in the region, including through local authorities, combined authorities, or through high street banks.

The British Business Bank works closely with Innovation SuperNetwork, an investment readiness group that delivers specialist business support to help companies grow through innovation. They provide investment readiness and pitch training to businesses across the North East, including Tees Valley. It’s a great programme to take part in because you can potentially secure both equity investment and grant funding.

Incubator and accelerator programmes often organise events where businesses can meet investors informally; it’s a great way of making connections. They’re also a great way to meet like-minded individuals who you may end up working with and bringing into your business.

Having a professional and concise pitch deck is also really important. Investors will often want to see this before meeting you. Think about who the best person to pitch is as well; it should be someone that can articulate themselves and the business well.

Accessing equity funding through Northern Powerhouse Investment Fund II

A major development in the finance and funding landscape in the North East is the launch of Northern Powerhouse Investment Fund II; a £660m debt and equity programmme managed in the region by NEL Fund Managers and Maven Capital Partners.

NEL Fund Managers provide two debt programmes; a smaller loan fund of 25k – 100k, and a larger one of £100k - £2m. Equity finance is looked after by Maven Capital Partners and provides investment of up to £5m. Any interested businesses can approach each fund manager direct for more information. All three programmes will be running for the next five years.

If anyone would like to find out more, the British Business Bank is running a series of roadshows across the North East to introduce the Northern Powerhouse Investment Fund II. Events will be taking place in Middlesbrough (June), Country Durham (September), and Northumberland (November). You can find out more on the British Business Bank website. 

If you would like to find out more about equity funding and access to finance in the North East, visit the Finance and Funding Toolkit. You can also book an appointment to speak to one of our Business Support Advisers who can provide impartial advice on the best finance and funding for your business.