What is equity funding?

If your business doesn't have the revenues or financial history necessary to successfully apply for a business loan, equity funding is another option.

What is equity funding?

Equity finance is generally the issue of new shares in exchange for a cash investment.

Your business receives the money it needs and the investor will own a share in your company. This means the investor will benefit from the success of your business.

Benefits may include proceeds from an eventual sale or buyout, and any dividends your business decides to pay before that happens.

Equity funding

Equity investors can be anyone from the founder's friends and family to a large private equity house.

The most common types of equity investors include:

  • Friends and family
  • Angel investors and angel networks
  • The crowd (through crowdfunding platforms)
  • Venture capitalists
  • Government funds
  • Private equity funds
  • Corporates (directly or through venturing arms)

Advantages of equity funding

If your business doesn't have the revenues or financial history necessary to successfully apply for a business loan, your other option is equity finance.

Investors recognise that their potential return on investment will be in the longer-term, with greater risk and uncertainty attaching to it.

Equity investors benefit from your business by receiving dividends and/or when they exit your business. This means you won't have to worry about making regular repayments. Not having to think about making repayments while your business establishes itself can be helpful and it also helps manage your cash flow.

The right equity investor should bring to your business more than just their money. Many will be well-connected through their previous investments or experience, and you can use their skills and experience to help grow your business.

Why choose equity funding?

  • If you have little or no revenue
  • Want to bring on board additional expertise, and
  • Are happy to trade-off selling a stake in the company with potentially higher costs to achieve quicker and greater growth

For some businesses, the choice between equity and debt will be straightforward. For others, there will be elements of both that will be appealing and suitable. 

How we can help with equity funding

The Scottish Investment Bank, our investment arm, actively invests in high-growth businesses across Scotland and provide advisory support to companies looking to raise funding through our financial readiness team.

We have a suite of investment funds and programmes we invest under.

Our model is to co-invest alongside a range of private sector investors (angels, angel syndicates, venture capitalists, private equity and corporate investors) into ambitious Scottish companies with high growth potential.

Got a question about accessing finance?

Get in touch with our team of experienced financial readiness experts who can help you secure funding from a range of sources including bank funding, equity funding, and grants.

Disclaimer

This guide was written by our investment team at the Scottish Investment Bank who work with Scottish businesses and UK and international investors.