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26 January 2012

Equity Partnerships - taking your business to the next level

Have you considered external equity funding for your business?

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How can you gear your business up for growth without saddling it with debt? According to some of the North West's most inspiring entrepreneurs, the clear answer is by embracing external equity funding.

The North West Fund provides equity investment through a range of funds, offering the capital and expertise needed for business owners to 'step change' their businesses. However, while start-ups are often highly receptive to having external investors on board, it can be difficult for more established firms to do so as it is often characterised that, in doing so, they will be giving away a slice of their company.

Andy Leach, Chief Executive of North West Business Finance, which manages The North West Fund, is clear on the positive impact that equity investment can have on the fortunes of a business, often providing the impetus for transformational change in value.

"Of course, businesses can grow by taking on debt.  However, as banks should, quite rightly, only be prepared to lend against certainty, this will preclude funding being raised on the basis of the future prospects of a business.  As a consequence, growth funded by debt will be slow and measured, rather than transformational.  Furthermore, equity tends to be more patient and forgiving than debt funding given the alignment of interests that will exist between shareholders," he said. "The only real way to achieve a step change in a business is  through equity investment. Unfortunately, it appears that a culture has developed in the UK which views businesses that take on "expensive" equity funding rather than "cheap" debt funding as having "failed".  This compares starkly with the US where, securing equity funding from a Venture Capital or Private Equity Firm  is seen as a badge of honour. That is how companies grow and entrepreneurs realise their dreams."

Others agree, for example Eugene Boyle co-founded Manchester-based fixed phone line provider XTML, which was sold to Nextra UK following an equity investment by 3i. He was then backed by YFM, manager of the North West Fund for Development Capital, in a management buy-in of Gorton Bros in Manchester.

He said: "People say (of taking on an equity partner) 'that is not for me'. They want to grow quickly but to do that they need some kind of funding. It is about whether you really want full control or whether you are prepared to give a little bit of control away and achieve your ambitions quicker."

Another successful businessman boosted by bringing on board equity partners is Anthony Preston. He founded Pets at Home in 1991, before securing two rounds of investment. The business was eventually sold for £955m in 2010.

Anthony said: "From my perspective, using equity to grow your business allows you to take opportunities faster and capitalise on those that would otherwise disappear, if you weren't able to move quickly."

Pets at Home is one of the great North West success stories of recent years. Now though, through the equity funding available from The North West Fund, the Anthony Prestons of tomorrow are being uncovered.

So, rather than ask yourself the question "How much of the cake am I, reluctantly, prepared to give away?" challenge yourself by asking "With the right equity funding and partner, how big can I make the cake?"

If you are looking to grow your business, the support provided by an equity partner can be invaluable. As well as providing you with the finance you need to step-change your business, fund managers for The North West Fund for Development Capital are able to share guidance and advice, developed through years of business experience.

Throughout the year The North West Fund is involved in a number of events, where you can find out further information about the finance options available and speak directly to the fund managers. For further information about the events we have been a part of in the past please visit http://www.thenorthwestfund.co.uk/eventspast, alternatively to find out about forthcoming events we are planning to be involved in please visit http://www.thenorthwestfund.co.uk/events.


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