Attracting investment and eventual exit strategies are key areas that all business owners should consider. Initially, a startup may need funding to ensure growth and success. At the same time, an established company may need to position itself for a smooth exit.
In this newsletter, we examine some of the most common investment types for startups. We also take a closer look at some exit strategies for established companies that ensure a smooth transition.
How Scaling Businesses Can Attract Investment
For many startups, securing funding can be the difference between success and failure. There are numerous options for startup and growth funding in the UK, including:
- Angel Investors: Private investors that usually provide funding and mentorship.
- Venture Capital: Some firms specialise in funding startups with high growth potential. In return, the Venture Capitalists (VCs) receive an ownership stake in the company.
- Government Incentives: The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) offer certain tax reliefs, which encourage private investment.
These funding options provide the capital necessary to scale and also offer access to valuable networks that support business growth. To attract these types of investments, businesses must have a clear value proposition and scalable business model.
The UK Has an Established Private Equity Industry
The UK is renowned for its private equity sector, making it an attractive proposition for companies that have matured beyond the startup phase but have the potential for substantial growth. Private equity investment is usually structured as a combination of debt and equity, unlike the early stage investment which is often equity only. Private equity investors usually aim to exit the business in 3 to 5 years, so are often introduced when that timeline aligns with the exit timeline of the existing shareholders.
Private equity firms also offer guidance on restructuring the business to maximise growth potential. Businesses must conduct due diligence to ensure that the partnership is beneficial for both sides. The rights and obligations of all parties should be clearly outlined in investment agreements.
Taking Your Business Public
Listing your business on the London Stock Exchange or Alternative Investment Market (AIM) can help attract investment. It also increases the credibility of your brand. Each platform offers unique opportunities depending on the size and growth stage of your company:
- London Stock Exchange: This is the leading choice for established companies seeking large-scale investment.
- Alternative Investment Market (AIM): This is the preferred route for startups or smaller companies with significant growth potential.
When going public for the first time, a company must prepare for an Initial Public Offering (IPO). This includes drafting a prospectus, making financial disclosures, and establishing corporate governance frameworks.
What About Exit Routes?
An exit strategy provides a roadmap for the future. It preserves business value, maintains stability during ownership transitions, and ensures continuity.
The UK market offers several exit options that include:
- Mergers and Acquisitions (M&A): When a business is sold to new owners who may also combine the business with another complementary or competing entity. This approach allows the business to carry on under new ownership and potentially access new markets and achieve growth in the context of an enlarged group.
- Management Buyouts (MBOs) and Management Buy-Ins (MBIs): When existing management teams or external managers take full control of business operations by way of acquisition.
- Employee Share Ownership Trusts (ESOTs): When employees take ownership of the business by way of an employee trust acquiring the business. This method enhances employee engagement and ensures that the company’s ethos and culture continue.
Each route has potential advantages and disadvantages, and careful planning is required to ensure a smooth transition.
How 3CS Can Help
There are several legal obstacles to overcome when navigating the UK’s investment landscape or formulating an exit strategy. Our expert team of commercial solicitors can ensure that you are prepared at every stage. We can help you structure deals that protect your interests.
Whether you are setting up a new venture or planning your exit, we are here to guide you through the process with tailored advice and practical solutions. Contact 3CS today to discuss your options in more detail.
