Equity finance options are a popular source of funding for businesses, and several types are available, each with advantages and disadvantages. Here are the six types of equity options:
ANGEL EQUITY FINANCE: Angel equity finance is a type of funding where individual investors or groups of investors, also known as syndicates, invest their own money in a business in exchange for shares. These investors, commonly called business angels, are typically wealthy individuals willing to take a high risk in exchange for the potential of high returns.
Angel investors can provide a valuable source of funding for businesses, particularly those in the early stages of development. At the seed stage, lower amounts of funding may be available, but businesses in the growth stage may be able to attract higher amounts from angel syndicates. The deeper-pocketed angels can invest upwards of £50,000.
Angels can offer multiple rounds of finance and frequently co-invest with other sources of equity and co-investment funds as further growth finance is required. This can be particularly helpful for businesses that require ongoing financial support.
In addition to providing capital, angels often bring valuable experience and networks. Unlike venture capital or other forms of equity investment, angel investors tend to take a long-term view of their investments, helping entrepreneurs to grow their businesses over time rather than seeking a quick return. They can share their first-hand experience in growing businesses, particularly early-stage ones, and leverage their networks of contacts to help businesses succeed.
Most angels focus on investments within a small geographic area, giving them local knowledge and local networks that can be particularly helpful to businesses in that area. Additionally, angels often make investment decisions quickly, without complex assessments, although tracking the right angel can take time.
However, there are also potential drawbacks to angel investment. One of the most significant negatives is that businesses may have to give up equity or shares in exchange for funding. This can dilute ownership and decision-making power. Nonetheless, the most significant positive aspect of angel investment is usually a combination of the cash injection, valuable business connections, and advice from experienced investors.
It is essential for businesses to carefully evaluate their options when considering angel investment, as it can be a complex and time-consuming process. A detailed business plan is necessary, and legal fees will be incurred through the deal negotiation, regardless of whether the investment is ultimately secured.