The technological revolution has led to a massive growth in tech businesses, many founded by individuals. This has meant a lot of hard work for these business founders, but they have been able to put their own mark on the industry thanks to their own talents and efforts. However, as with any other business, there is the conundrum of financing, especially when it comes to funding the start-up and subsequently its expansion.
Finding the capital to finance the growth of a tech business can prove problematic, especially since the end of the recession. Lending policy, such as by banks, remains tight and many businesses do not meet the necessary criteria. Even when money is successfully borrowed, the business still has to pay back the debt – with interest – and this only eats into capital.
Where borrowing is a closed option to tech businesses, this could put its future in doubt. The very nature of technology means that cash has to be on hand to fund investment in new ideas and products, so an inflow of cash is important. However, there is another source of funding available, namely private equity.
With private equity the tech business is not saddling itself with more debt. This form of funding is ideal for tech businesses that have been established – generally it is not available for start-ups or in the early stages. Private equity is ideal for established tech businesses seeking to expand because these enterprises have access to expanding markets, generally own intellectual property rights through patents and trademarks, have products with a unique selling point and have a high earning potential.
Private equity companies such as AnaCap are available for suitable tech businesses, and it is also worth contacting them for advice about the various options.
If the business is found to be suitable for private equity investment then a share will be taken in the business. Letting another body have equity in the business may place doubts in the mind of the owner, but it should be understood by the principal that he/she will remain in control of the enterprise. That is why private equity investors will often invest only in businesses where the level of hands-on management is high.
The approach of private equity may generally be “hands-off,” but assistance is available if it is felt to be required. This can include operational expertise and strategic guidance, which can be essential if the tech business is to continue pushing forward. It should be understood that the private equity provider is not a lender seeking to recoup money lent but instead an investor, and should the tech business collapse, that investment will be lost.
Private equity is an exciting alternative for entrepreneurs wanting to grow a tech business in what is a very fruitful market niche. This form of capital provision frees businesses from the deadlock of loan payments, releasing capital to be used in future developments. These factors provide the benefits of running a tech business privately.
Photograph by John Seb Barber