Bure Valley Group is an investment brokerage business which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
What is private equity investing, and how does it work? In short, a private equity firm (or General Partner; GP) is typically an investment fund with a fixed lifespan of 5-10 years, which raises money from institutional investors such as family offices and pension funds. This fund is structured as a limited partnership, and the capital is used to invest for an equity stake in companies which are not publicly traded.
Here at Bure Valley Group, one of the great features of private equity investing in the UK is that it is possible to invest in EIS-qualifying companies (e.g. via an EIS fund), which also offers investors attractive tax relief.
If you’d like to browse our EIS opportunities after reading this guide, then please see visit our portfolio page. For business owners seeking funding, you can reach us via:
+44 160 334 0827
What is Private Equity?
Each year, UK private equity firms provide billions in investment to thousands of companies, helping them develop and grow to provide meaningful returns. Whereas a publicly-traded business might have thousands of shareholders to satisfy, a private equity manager is usually much more involved with the daily running of the company invested in. This gives investors more influence to enhance the business, communicate with directors and increase value.
Pros & cons of private equity for business owners
If you’re a business owner seeking to take the growth of your company to the new level, then private equity allows you to access experienced business developers with deeper pockets. There is also potentially an advantage to having an alternative to public listing, where your company is constantly subject to scrutiny from quarterly results. This can open up much more breathing space for you to develop your business model and plan, which is especially useful if you’re contemplating a radical change in direction for the company.
On the other hand, private equity investment does involve giving up a significant level of control in your company. Sometimes it even means relinquishing a majority stake. Another potential downside is that the funding comes with a time limit (5-10 years), whilst the stock market opens up more permanent sources of investment.
How much private equity investment is common?
The level of investment will, of course, vary depending on how large the business in question is. Nearly 90% of private equity goes towards small-medium-sized businesses (SMEs), which have fewer than 250 employees. Therefore, it isn’t uncommon to hear of private equity investments worth between 10m-50m. However, at the highest end, the numbers can be in the hundreds of millions or even billions, although such deals are rarer.
Alternative sources of business funding
It might be that your company is not quite ready to take on the commitment involved with private equity investing. However, you might also be unprepared to go public, yet you require funding to boost the growth of your business. Here at Bure Valley Group, we help business owners in this position by introducing them to alternative sources of funding, which also benefit investors.
The Enterprise Investment Scheme (EIS) is one such option. Under this scheme, a qualifying company is allowed to raise up to £5m per year from investors, and up to £12m across its total lifespan. The funding can only be used for specific purposes (e.g. a qualifying trade or research and development), yet it allows you to retain control over the business and shield it from stock market investors during this important time of business development.
Your business must meet certain conditions to have a good chance of successfully applying for EIS-qualifying status. For instance, it must be permanently established in the UK and not trade on an official stock exchange. Neither can it be controlled by another business, and the gross assets cannot be worth more than £15 million.
The other great thing about EIS is that it can offer very nice benefits to prospective investors. Up to 30% of their EIS investment can be claimed back via their income tax bill, and any EIS shares held for at least 3 years are free from capital gains tax when disposed of.
Consider the internal situation first
Seeking outside funding is a big decision, and it’s a good idea to explore all realistic internal sources first. External investors will ask you about this anyway, as this gives them confidence that you are a responsible business owner with a viable strategy.
Here are some internal financial resources to consider optimising:
- Investigate your quality control.
- Check your inventory levels.
- Make sure your overheads are under control.
- Ensure customer payments are on-time.
- Keep sales revenues moving in a positive direction.
- Ensure prompt supplier payments and cooperation.
- Make sure the company has robust adherence to credit control.
It’s a big decision for a growing company to seek funding from outside sources. Having the help of an experienced investment partner can, therefore, be enormously helpful to ensure you pitch the right way to prospective investors, and find the right partner for your business.
If you are a successful investor and would like to know more about our EIS opportunities here at Bure Valley Group, then we’d love to hear from you. Get in touch today to start a conversation with our team, and discuss some of the great investment memorandums we have available:
+44 160 334 0827