9 types of equity investor to review before raising funds for your business

By Oliver Woolley, Envestors

As you build your business there will be times when you need to raise equity capital to enable you to reach the next stage of development. But which type of investor will be best for your business?  Fundraising is a sprawling arena that can be hard to navigate so we have provided an overview to help you identify the type of investor that might be the right one for you.

Given the complexity of raising capital we always recommend working with an experienced professional advisor. 

  1. Private Investors also known as Business Angels

Private investors are High Net Worth individuals who invest their own capital. Typically, they invest £5,000 to £250,000 per deal, or in groups (‘syndicates’ or ‘networks’), where deal sizes can be greater. 

A big incentive for angel investors is the tax benefits of the Seed and Enterprise Investment Schemes (S/EIS), so check your eligibility.

Angel investors are ideal for businesses from seed to series A, raising from £100k to £5m.

  1. (Seed) Enterprise Investment Scheme (S/EIS) Funds

Private investors can benefit from tax relief when investing directly into early-stage companies.  Alternatively, they can invest in independently managed S/EIS funds.

As per SEIS conditions, SEIS funds focus upon start-ups seeking their first round of investment of up to £150,000.  EIS funds invest in EIS qualifying businesses although they’re highly selective. 1% of the propositions result in an investment.

In addition, Venture Capital Trusts (VCTs) are another tax-efficient vehicle for investing into private companies.

  1. Enterprise funds

The European Union supports three regional funds:

The UK government is expected to continue supporting them via the British Business Bank when EU funding has ceased. 

In addition to the three regional funds, British Business Investments, a commercial subsidiary of the British Business Bank, set up the Regional Angels Programme to address regional imbalances in access to early stage equity finance for smaller businesses.

  1. Government-supported funds (UK)

The UK Government directly or indirectly supports a number of initiatives, with support provided through the British Business Bank. For example:

The Angel CoFund

The Angel CoFund works with syndicates of angel investors to specifically support early-stage growth businesses. Syndicates can look to the CoFund to provide funding of £100k-£1m in investment rounds from £200,000 upwards.

Enterprise Capital Funds (ECFs)

20+ government-supported ECFs operate in the UK. They usually invest £500,000 to £2m in established growth companies which are already profitable, or near profit.

Business Growth Fund (BFG)

The BGF is a funding scheme for medium-sized companies launched by the government and the British Bankers’ Association. The £2.5bn fund invests from £1m to £15m for a 10-40% share of the business.

Note, new initiatives are launched and existing initiatives terminated continually, so check at: British Business Bank.

  1. Corporate venturing

Corporate venturing is where large corporations invest in start-ups in order to develop innovative products or services. It’s seen as a way of outsourcing research and development.

  1. Crowdfunding

Companies can source funding from large numbers of individuals, usually customers or fans of the product who want to support the company, and who are not typically sophisticated investors. Crowdfunding platforms such as Crowdcube and Seedrs enable these individuals to invest as little as £10.

Typically, you must have secured a significant percentage of the funds before you go live on a crowdfunding platform. Fail gain traction and your round may be unpublished.

  1. University seed funds

Many universities have seed funds affiliated to their technology transfer programmes and focus on areas such as technology invention and innovation. Seed funds typically support innovations from academics within the university.

SETsquared, to take one example, is an enterprise partnership and collaboration between the five leading UK research-led universities, and ranks as the Global No.1 Business Incubator.

  1. Funds

In addition to the S/EIS funds listed above, there are hundreds of fund managers who manage private investors’ funds. They charge a fee so make sure you understand the total costs.

Most funds, other than those listed above, tend to invest in established, profitable companies rather than early-stage ventures. The most active include Mercia Fund Managers, Par Equity, SFC Capital, Lloyds Development Capital and Maven Capital Partners.

  1. Family Offices

Family Offices (FOs), also known as Private Offices, manage the wealth of an Ultra High-Net-Worth individual or family. It is possible that an FO may ask for a substantial or even controlling stake in your business.

ABOUT THE AUTHOR

Oliver Woolley is CEO and co-founder of Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early stage investment in the UK.

Envestors is authorised and regulated by the Financial Conduct Authority.

Web: https://www.envestors.co.uk/

LinkedIn: https://www.linkedin.com/company/envestors-llp/

Twitter: @EnvestorsLondon

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