What is minority investment?
Minority investments have helped thousands of British and Irish businesses fund their big plans for growth. Many entrepreneurs find that minority investment allows them to stay in control as they see through their ambitions.Looking for minority funding?
Minority investment is a type of equity funding where the investor takes a non-controlling stake (less than half) in a business in exchange for capital. The primary objective of minority funding is to propel the growth of a business. The investor typically provides funding and support to help the existing management team execute their growth plans.
How does minority investment work?
In most cases, a business accepting minority funding (also known as a “minority raise”) will receive primary capital – money which goes straight to the company’s balance sheet and which helps finance its various growth strategies.
When it comes to the transfer of equity, in the case of limited companies, this will usually involve changing ownership of shares.
What are the benefits of minority funding for growing businesses?
The minority investment model holds a number of advantages for businesses looking to scale up quickly and sustainably. Most of these benefits are related to control, as the existing management typically retains decision-making power on all key matters.
Minority investors are by nature non-controlling. Their voting rights don’t outweigh those of the existing shareholders or management team. It’s likely their motivation for investment will be to grow the company over the long term for the mutual benefit of all parties.
Minority investment gives business owners access to funding that can make a huge impact on their growth plans, ensuring they can enjoy the financial rewards of scaling up without giving up control of their business. Many business owners find that maintaining control is particularly valuable when it comes to choosing the timeline and method of exiting the business, for instance by selling it or listing on a stock exchange.
Is minority capital right for your business?
Minority equity investment can prove transformative for a company’s growth path. If you answer ‘yes’ to most of these questions, then minority funding could be ideal for your business:
- Do you want your existing management team and shareholders to retain overall control and decision-making powers?
- Do you need long-term support and guidance to help your business grow?
- Are you seeking funding from multiple investors?
- Do you want to prevent your investors having the ability to force a sale of the business at a time that may be unsuitable for you (these are known as drag rights)?
invested in around 400 growing businesses
typical stake in BGF’s minority equity deals
BGF-backed businesses have achieved successful exits
How are minority investment deals structured?
As a non-controlling, minority investor BGF's offering is more flexible, meaning we can support businesses with considerable follow-on fundingAndy Gregory Chief Investment Officer
Like all forms of funding, minority investments can take different shapes and sizes, but most will share some common characteristics. The equity stake taken by the investor will be under 50% – for instance, it may be between 10-40%. A smaller shareholding gives a business greater scope for taking on multiple investors while retaining overall control.
Minority investors usually commit to working alongside the company’s leadership team and it is common for a non-executive chair or director to join the board as part of the investment. This individual can provide expert strategic advice without taking on day-to-day management responsibilities.
How can businesses use minority funding to grow?
One of the distinguishing features of minority investment is that it enables businesses to implement their long-standing plans for growth in short order. While minority investors are on hand to help guide the process, they cannot force a new strategic direction. These are just some of the common uses of minority funding for scaling up quickly:
A smart buy and build strategy can hugely expand the size and profitability of a business overnight.
Opening new stores, factories or offices and even moving into new territories can accelerate growth.
Some businesses invest heavily in what they sell – to improve and diversify their product range and potential customer base.
Minority funding can put a company in a better position to identify and hire the best talent, helping them drive long term growth.
The differences between minority and majority investment
The key difference between minority and majority capital is of course the amount of equity which is handed over in exchange for the funding. An investor of majority capital will almost certainly have the power to overrule the management team if there is misalignment over key issues. For instance, a majority investor may be able to force the sale of the business – and therefore exit their investment – even if the management team does not agree with the timing of the sale.
Needless to say, majority funding may be appropriate for a business – it all depends on its objectives and financial position. Entrepreneurs should seek independent financial advice prior to taking investment.
The private equity world has traditionally favoured majority investments, which are typically more predictable and less volatile. This was a problem for business owners with ambitious plans for growth but no intention of a quick sale. Minority investment has grown in prominence over recent years to fill this gap in the market.
BGF’s approach to minority investment
Unlike other investors, BGF is and will always be a minority, non-controlling investor. Our equity share is between 10-40%: it’s part of our commitment to backing entrepreneurial innovation in all its forms.
We believe that entrepreneurs and management teams should be empowered to execute the growth plans for their businesses. Our role is to provide the funding, expertise and support they need to realise their potential should a business select us as an investor.
BGF isn’t driven by arbitrary exit deadlines or pressure to deliver immediate returns, with many of the companies we back receiving follow-on funding.
We’re dedicated to backing brilliant businesses wherever we find them. We have investors in 16 offices across the UK and Ireland. Our local expertise is invaluable for supporting our companies’ growth ambitions.
It’s not just our investment team that’s here to support you. Partnering with BGF gives you access to an array of business leaders, industry experts and investors through our Talent Network.
A proven approach
When the time comes to pursue an exit, we’re on hand to help with expert strategic advice. More than 100 businesses backed by BGF have achieved successful exits – on timelines decided by their management teams, not dictated by us.
Our ‘BGF explains’ series is aimed at demystifying the world of business funding by laying out the meaning of key financial terms.
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