Understanding funding options: Private equity and venture capital
PE and VC funding involves the funder becoming an investor in your business and thus being entitled to a share of the profits, which arguably, makes it expensive. Just as importantly, PE and VC diminishes control of your business because the investor often wants a seat on the board. From day one, you will need to focus on growing the business and the eventual exit because the investor will generally be looking for their exit in three to five years.
How does it work and what are the benefits?
PE and VC funds are available, but you must have a solid track record and very strong growth prospects. Businesses that find a suitable investor can flourish as a result of the strategic expertise that PE and VC funders bring to the business.
Why might it not be the solution for your business?
PE and VC funding is not widely available to start-ups – investors tend to prefer established (although this can include early stage), fast-growth businesses. Also, some business owners may not welcome the involvement of an investor, particularly if the investor and owner have differing timescales for their eventual exit.
This is specialist funding which is only going to be appropriate in limited circumstances, and it will involve giving up a proportion of the ownership.