Minority or majority investment: choosing the right option

If you’ve chosen to seek equity funding for your business, you must decide whether to choose minority investment or majority investment. BGF, the UK and Ireland’s most active investor, explains the pros and cons of both.

Important factors in your decision-making should include what you intend to use the funding for, your long-term goals for the business, your personal goals, and what you want the leadership structure to look like. It’s crucial to take time to consider these factors.

Minority investment

A minority investor delivers funding in exchange for a stake of less than half of your business. A minority investor is, by nature, a non-controlling partner. That typically means the existing founders or management team keep control of key decisions.

BGF provides investment to help businesses grow, and we believe minority investment is the best way to do this because it allows management teams to navigate their own path to growth.

Minority growth funding

Minority growth capital is for the express purpose of scaling up a business. Most of the funding will go directly to the company’s balance sheet to stimulate growth. Common growth strategies include investing in more assets (for instance, property or stock), expanding operationally (scaling up recruitment or moving into new territories), executing an M&A buy-and-build strategy, or developing new products.

Minority growth capital may be right for you if:

  • You have ambitious plans to grow the business that require capital
  • You want to scale up your business without incurring debt
  • You want a non-controlling investment partner that won’t be able to overrule you on key decisions
  • You want to retain control over when and how to exit your business, whether that be by selling it to another company, another investor, or listing on a stock exchange

It is important to seek advice before giving up a share of your business.

Majority investment

Majority investment involves an investor buying more than half of a company in exchange for funding. Majority investors are often controlling shareholders. They may be able to exercise control over the company’s finances or operations, potentially overruling the views of its management team in cases where views are misaligned – and, of course, they may be completely aligned. Indeed, a majority investor may agree to preserve a business owner’s voting rights or vetoes over certain issues as part of the deal. It all depends on the nature of the agreement, which is why it is important to seek advice before giving up a share of your business.

A majority investment could be the right choice for your business if:

  • You need a larger amount of funding than could be provided by a minority investor
  • You’re looking to scale back your involvement in the company over the coming years and are happy to let another party have control over key decisions
  • You want to step back from the business while maintaining a minority of shares in order to benefit from the future sale of the company

This article originally appeared on the BGF Insights hub.

About BGF

BGF was set up in 2011 and has invested over £2.5bn in more than 400 companies, making it the most active growth capital investor in the UK. BGF is a minority, non-controlling equity partner with a patient outlook on investments, based on shared long-term goals with the management teams it backs.

BGF invests in growing businesses in the UK and Ireland through its network of 16 offices.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

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