Strategic Planning and Equity Partners Mix Quite Well
If you could analyze the reasons current equity partners decided to invest in particular businesses, you would discover that in most cases there are two – to fund a specific project or to fund general business operations with an eye towards a significant return on the investment over the long-term. Whether you decide to pursue new business funding for a project or for strategic goal driven expansion, you must specifically and clearly define your reason up front for requesting the funding so that the right investors can be targeted.
A project can take many forms like buying a strategically aligned company that improves competitiveness or developing and manufacturing a new product line. A project may involve production expansion or taking the business operations into foreign markets. Your business may need to make a major capital investment in equipment to increase profitability and meet increasing customer demands.
Equity partners may also decide to provide funding for business operations in pursuit of a growth strategic plan or even to startup a new business. There is not a project per se but rather a business plan that requests startup funding for a new operation with long term growth projections making the business funding similar to venture capital. Unlike business loans and venture capital, equity partners agree to participate in decision making as part owners of the business.
The Scale of Ownership Varies
Differentiating equity partners from venture capital or angel investors is the fact equity partners, equity investment groups and institutional equity investors will take a percentage ownership share of the business. That is precisely why the term “equity” is used. The scale and endurance of ownership will vary based on the reason for the investment.
For example, equity partners investing in a project will remain as business owners until the project is completed. By then it is expected the investors have earned the expected returns. Often, project funding will lead to a minority ownership arrangement and the partners do not participate in the management of the project.
In the second situation in which funding for strategic operations is involved, the equity partners are more likely to require a majority ownership share for a long term period. This is reasonable considering the fact that the investors are funding the company with the expectation of improved long term profitability. Naturally they will want to have a say in the decision making.
Equity partners are willing to invest in most types of businesses and for a variety of reasons. From startup funding to long term growth, these investors agree to business ownership in exchange for providing the funding needed. Even if you are willing to consider equity partners as a source of capital, it is important to consider all sources of money including angel investors and business loans. If equity partners are the ideal option after analysis, then you can develop a business plan that will make the offered partnership as attractive as possible.
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