This is where you raise cash in exchange for selling part of your business (i.e. you give up some of your ownership (equity) in your business. Giving up some ownership (and control) can be a hard decision so you need to think about how comfortable you are with the idea. However it may be necessary for the business to grow – and remember that you may prefer to own 40% of a business worth $2,000,000 than 100% of a business worth $150,000.
The main providers of equity capital are:
Angel investors - Angels are people (often other business owners) who think your business is promising and are willing to invest in it. One advantage of angel investors is that they’re usually keen to invest at an early stage, which can help with your start up. Another is that they often have a lot of knowledge, experience and connections you can take advantage of.
Visit the Angel Association of New Zealand’s website for an overview of angels and what they can provide.
Venture capitalists - These are investment companies or fund managers who provide cash in return for part-ownership of your business. They differ from angel investors in a number of ways:
- They’re typically looking to invest larger sums of money, so they tend to look at larger businesses
- Their requirements are much tougher
- They may not want to play such an active role in the management of your business, but typically seek a role on your board.
For more information on the venture capital environment visit the NZ Private Equity and Venture Capital Association website.