Creative Finance

Raising Finance For Your Business by Mark Blayney
	A 'nuts and bolts' guide for owner managers to what sources of finance are available
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Equity finance

Sources of equity

·	You
·	Your family, friends or others known to you
·	Business Angels
·	Venture Capitalists
·	Trade Partners
·	Ofex

What issues do you need to consider?

Sources of equity
Potential sources of equity for your business are:

·	You Investing your own cash or cash that you have raised by borrowing against your other assets (eg mortgaging your house). The advantage of this approach is that you retain control of your business. The disadvantages can be that you do not have sufficient resources to fund the business properly and your personal assets are now mortgaged to the success of the business.
·	Your family, friends or others known to you Here you have direct access to people who may be able to provide cash without incurring costs and you have some idea as to whether they are actually likely to invest or not. However think very carefully about the implications of using such money and how these relationships will be affected by this arrangement (eg what happens if there is a business problem?).
·	Business Angels Are usually successful business people who have made sufficient money to have retired or sold their own business and are now interested in investing in small businesses both as a way of making money but as a way of continuing to be involved in business. For most businesses looking to raise less than say £250,000 (eg for a start up or seed development money), Business Angels usually offer the only realistic option (other than some smaller specialist regional venture capitalists). Business Angels therefore bring not only cash but usually significant business experience and often a good network of business contacts. The downside for the entrepreneur can be that they may seek to be actively involved in the direction of the business which can lead to conflict so it is important to see how hands on they want to be and how you feel about this. As they are investing their own hard earned money however, Business Angels tend to be very choosy about which businesses they invest in and potential Business Angel investments have a reputation amongst some business advisors of falling away at the last moment. They tend to invest locally and good local advisors will have working relationships with local active Business Angels and/or can put you in contact with some regional and national networks of Business Angels.
·	Venture Capitalists Other than some smaller regional funds that specialise in smaller amounts, most Venture Capitalists are looking for large investments to justify their time in undertaking the transaction. They will be looking for businesses with high growth potential and ambitious experienced management; where they can expect to be able to sell their investment on within say 3 to 7 years by way of a sale of the shares back to the company, sale of the company or a floatation; and obtain a return on their investment of over 30% a year. If you are looking to raise Venture Capital you will undoubtedly need a local advisor both to sell the proposal to the Venture Capitalist and to help you in structuring the deal.
·	Trade Partners You should think about whether there are any potential trade partners who might be interested in a stake in your business or in helping to fund a project in some kind of joint venture. You need to be careful about how this arrangement may affect your business however. If you have a JV with a supplier, are you then tied to them for supplies or are you free to shop around? If you have a JV with a customer does this give you problems with other customers who might be their competitors?
·	Ofex The over the counter market now allows you to raise money through a listing using specialist brokers. This is a specialist area requiring good local advisors and as the process can easily cost £100,000 is only worth doing if the sums to be raised are in excess of £1,000,000.

What issues do you need to consider?
In all cases where you are bringing in outside investors you need to consider:

·	How much control you are handing over
·	The need for local advisors to help you in the process
·	How long it will take to raise the money
·	How certain you are of getting it, and
·	The costs involved in attempting to raise cash (and to what degree your advisors will require an upfront payment or will work on success only fees).

Creative Business Finance Limited. Registered in England & Wales.
Company number 4705076. Registered office address 43 Conniscliffe Road Darlington DL3 7EH
© Mark Blayney 2006