Funding Business Expansion through ‘Private Equity Financing’

Expansions are believed to be the best indicator that businesses are doing good. Unfortunately, while every entrepreneur seems to be of the opinion that bigger businesses are always better, the act of expanding a company is easier said than done.

It is easy to determine if a business is ready for expansion. In fact, there is only one major indicator: there is a bigger demand for the product or the service that the company offers. However, having a bigger demand does not necessarily mean that the business owner can easily whip out a plan on how he will expand his or her business – there is a bit of a problem called money.

A business owner would be lucky if he or she has some savings that can be tapped for a business expansion. This is not generally the case. And while there are a lot of options when it comes to financing a business expansion – angel investors, bank loans and support from venture capitalists – there is one option that has started to get attention of business owners over the years: public equity financing.

As the name implies, private equity financing means that an investor would be invited to put his or her money in a business in exchange for a partial ownership of the company.

This in itself would make a lot of entrepreneurs turn around and look for other ways to finance their business. A lot, of course, would not want to hand over the reins of the company that they built to another person in exchange of financing a business expansion.

But looking at it clearly, public equity financing is not as bad as it sounds. For one, agreements between the parties will still have to be forged – meaning one does not necessarily have to hand over the control of the business to the investor as the original owner have an option to retain the majority of the company, thereby putting him or her in direct control of the operations.

One has to keep in mind that investors, at least most of them, are merely concerned with the profits of their investments and would not want to be bothered by the rigors of administrating a business. Moreover, by being technically a part-owner of the company, the original owner will have an assurance that the investor is putting a great deal of interest in the business that also carries his or her name.

This is why public equity financing works both ways in expansions: investors get their bigger profits, while original owner gets to expand his or her business.

Looking for partners

The challenge in public equity financing, like in other forms of investor-related concerns, is for the business owner to find and convince one to be an equity partner in his company.

Finding will not really be a problem, as there are always those who have some extra funds that they intend to invest in a business eyeing expansion. The major concern is to be able to convince them.

In convincing potential equity partners, business owners must keep in mind that they have to convince the former that they will earn profits from their investments. This can be achieved by presenting relevant information as to the operations of the business.

This may include, among others: discussions on the competencies of the current management to handle the expansion, the risk exposure of the equity partners, the business plan and objectives, the financial history and performance of the business.

The entrepreneur should also be ready in negotiating with the terms of the deal, including, as stated earlier, the level of control – or the lack of it – that the equity partner would have once the agreement is in place.

Finally, entrepreneurs must be able to list down his or her reasons for the decision to expand and, more importantly, to utilize public equity financing as a means for the business expansion.

Like what had been repeatedly said, capital for business startups and expansions will never run out – one just has to know what he or she is looking for and, more importantly, where to look for it.

More detailed information and useful advice can be found at http://www.funded.com Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check our website.http://www.funded.com

 

 

Copyright 2014 Funded.com LLC

Funded’s Blog

Share this post:

Related Posts

Leave a Comment