A person or company may invest in your business for a share of the profits. This is called equity finance and can include:
- venture capital
- a business angel
- an initial public offering (IPO)
Equity could be a good option if you don’t have the credit history to borrow through other means, or if you want to grow your business quickly.
Different investors will want to invest for different reasons. All will want a share of the company and most will want some input into how the business is run. The type of investor you can attract will depend on how big your business is and the stage of growth it’s at.
Angel investors are individuals who invest in early stage or start-up companies. They usually invest their own money so are prepared to take more risks. They are often successful entrepreneurs who can offer business connections and advice.
Venture capital companies invest other people’s money so usually want a proven investment. They invest at different stages in a company’s growth with more money being available for larger companies.
Corporate venture capital is similar except the investor will be an established company looking to invest its own money. They tend to invest in a start-up in the same industry as a way to keep ahead of industry developments.
Private equity companies invest in established companies that are planning to grow significantly. They will want a large share of the business, often enough to have control. They will introduce operational structures and improvements and expect a place on the board.
The first time you sell stock to the public is called an initial public offering (IPO). Your company is listed on the stock exchange and you are required to make your account’s public.
IPOs can raise a lot of money so are usually undertaken by established companies wanting to grow significantly. They come with a great deal of scrutiny of management structures, accounts and business plans.