19/05/2011

By Guy Rigby, Head of Entrepreneurs of Smith & Williamson

The private equity world comprises a myriad of investors and funds that make equity investments directly into privately owned businesses.

Venture capital (VC) is a subset of private equity. It is normally provided to early stage businesses with high growth potential, typically after the establishment of the business but before it has achieved scale. Venture capital investment, whether by business angels or funds, therefore carries high risks and offers the potential for extremely high rewards.

Private equity investors, on the other hand, tend to invest in more mature, established businesses, sometimes taking control of the business or sometimes providing growth capital in exchange for a minority interest. Private equity is often used for expansion, including ‘roll-out’ and ‘buy-and-build’ strategies.

At the lower or early stage end of the market, business angels tend to dominate the scene, as venture capital and private equity firms don’t want to spend their time and resources assessing smaller investments. This is often where the so-called ‘equity gap’ comes in, with angel investors typically investing from £10,000 at the lower end to £500,000 at the upper end and smaller venture capital and private equity firms often not wishing to make investments of less than £1-£2m.

So should you opt for a business angel or a venture capital firm?

If you’re lucky enough to have the choice, your intended pace of growth is likely to sway your decision. If you’re looking to grow fast and boldly and need a very significant cash injection, a VC is likely to be most beneficial. If you’re looking to grow in your own time with less pressure and less investment, a private investor may be preferable. In some cases, too much money can bring unwanted stresses and strains, so make sure you’re ready for the challenge.


A date for your diary

Later this year we will be hosting an event focusing on how to grow your business using external equity funding. “Inside Venture Capital” will be held in London in October.

If you are interested in attending please email your personal and business details to insideventurecapital@smith.williamson.co.uk.

If you would like to discuss the subject covered in this article or you want to sound out someone about raising finance for your business call Guy Rigby on 020 7131 8213 or email him at guy.rigby@smith.williamson.co.uk.


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