Benefits of an equity partnership

May 20, 2018

 

2017 saw 650,000 new businesses start globally, a massive 49% increase from six years ago and things don’t seem to be slowing down in 2018. Therefore, the need for cash injections is extremely competitive.

For many start-up businesses, accumulating capital is one of the hardest things to do and often getting a business off the ground is very much dependent on financial help. The popularity of BBC’s Dragon’s Den, now in its 15th series, sees hopefuls having their ideas and concepts made into a reality when they secure the investment from the likes of successful business owners, Deborah Meaden and Peter Jones. While the popular TV show demonstrates the need for cash injection into businesses to increase their chances of success, it isn’t always that easy.

Seeking investment from friends and family when you are just starting out is an option if those around you can afford to help you. However, dealing with the complications that are likely to come from borrowing from those closest to you can be a downfall. Then of course there is the long, drawn-out process of trying to get a loan from a bank. There are other options for start-ups that don’t include going on national television to gain financial backing from high net worth entrepreneurs.

Every year, more than 18,000 wealthy entrepreneurs privately invest, on average, £850 million into small start-up businesses for an agreed share of the business. Equity partners receive both a significant amount of their partner’s earnings but are also liable for their partner’s debts. While it might be tempting to go it alone or the idea of sharing profits might be off-putting, an equity partner will want to see your business succeed as much as you do. An equity partnership can be the ideal option for businesses struggling to secure financial backing and those who are keen to grow their company and increase profitability but need someone else’s expertise to do so.

Ruta Gabalis, CEO of AeroBlue and business turnaround expert, outlines the benefits that an equity partnership could have for your business: 

 

It can attract more investors 

Investing in a start-up business is a risk, and investors want to know that the business they are buying into has potential to grow and run successfully while you are able to produce a credible service. Getting an equity partner onboard is likely to attract more investors as they know you have someone working with you who has the relevant business skills to accelerate growth. Your equity partner might also have connections that could benefit your business and put you in contact with the right people for future business growth. 

 

An equity partner can add the right knowledge to your business idea

Many people who start a business from scratch do so because they have a fantastic idea or want to make their passion into something profitable. While you might have the best idea, investors look for someone who also has both, business and trade knowledge. The business knowledge is often something that has been gained over years and if you are just starting out in business, might not be something you are likely to have yet acquired. An equity partner will have gained these skills and can inject your new business with the right know-how. An equity partnership is a great way to pool together resources and skills to improve a businesses’ performance. Massive businesses including Uber used the help of financial backers who shared ownership of the business in order to get off the ground. 

 

It’s likely to increase profits 

While an equity partner takes a share of a businesses’ profits, they are a reliable investment for the start-up business in the long run. They will not only help you to secure further financial backing but, with their business knowledge, can help to see anywhere that your business might struggle, or where there is opportunity for profitability and growth. Having someone onboard who has proven their abilities in the business world can increase your confidence with future business endeavours. 

 

It’s a form of mentorship 

Business experts claim that investors can receive up to 100 new business ideas a day, however, to make these ideas work it’s not just all about the money. What is needed in most cases is often guidance and advice upon entering the world of business. New business owners need to know how to survive past the first year of initial success and what causes businesses to succeed and fail. 

 

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