Navigating equity funding to support business growth

At their core, VC and PE are both about securing funding for growth—but the approach, target businesses, and expectations can differ significantly.  

VC typically targets early-stage businesses. These businesses are high-risk, high-reward, and often don't have much in the way of tangible assets or profitability when they seek funding. VC investors are betting on innovation and the long-term growth potential of a company. In return for this risk, they usually seek high equity stakes (often 20-30%) and a potential exit within 5-7 years. 

On the other hand, PE typically targets more mature businesses, often with a proven track record, stable cash flows, and established operations. PE investors are more likely to engage in buyouts, acquiring controlling stakes in businesses, and typically expect to enhance profitability or scale operations through expanding market share, diversification or products and services and/or international expansion. For PE firms, the goal is to achieve returns within a 3-5 year window, albeit some may take a longer term view.

When considering equity raising, the location of your business can have a major impact on your funding opportunities. The UK is not a monolith—there are distinct regional dynamics that shape where capital flows and which sectors are attracting the most interest. London continues to be the main hub of the UK's equity markets, with it estimated that up to 70% of all VC funding flows to the city. The sheer concentration of talent, infrastructure, and financial services expertise makes it the go-to location for tech startups, fintech, and healthtech businesses. If your business is based in or around London, you're in a good position to access funding from both VCs and PEs, particularly in the growth capital space. However, this concentration can work against you—competition is fierce, and investor expectations are high. The valuation multiples in London can often run at a premium, and you’ll need a solid business model, impressive growth metrics, and a clear path to exit to stand out. Investors have the luxury of choice here, and they will be selective. 

In recent years, regional hubs have started to see more attention from VC and PE investors, driven by a combination of government incentives, lower costs, and a desire to tap into emerging innovation. Cities like Manchester, Bristol, Edinburgh, and Cambridge are becoming major players in the venture capital ecosystem, with increasing amounts of capital flowing to businesses based in these regions. Some of these regions are often referred to as part of the "Northern Powerhouse", and businesses located outside London may have access to more affordable funding options and less competition for capital. However, businesses in these regions must be able to demonstrate a unique value proposition to attract investors who may not have the same local knowledge or connections. 

If you are a business owner looking to raise capital, there are several key considerations you should keep in mind when navigating the VC and PE landscape in the UK. 

The first step is to understand whether your business is in the early-stage (looking for VC) or mature-stage (seeking PE) funding phase. Each type of investor has different expectations and will assess your business based on different criteria. If you're in the tech or life sciences sectors and are in the early stages of development, VC may be the right path. On the other hand, if you're looking to scale an already profitable business, PE might be a better fit. 

In a competitive market, the value of targeted outreach cannot be overstated. Whether you're in London or beyond, research the investors who specialise in your industry and region. Build relationships with firms that have a track record of investing in your sector, and don’t be afraid to lean into local networks, particularly in emerging regions like Manchester or Bristol, where investment is often more regionally focused. 

Both VC and PE investors are thorough in their due diligence. Be prepared for tough questions and a deep dive into your business model, financials, team, and growth potential. The difference is that while VC firms may focus more on your innovation potential, PE firms will dig deeper into financial stability and exit strategy. In both cases, you’ll need to prove your business can generate strong returns. 

Don’t underestimate the influence of your business’s location. While London remains the dominant force in UK equity markets, the growing regional ecosystems present unique opportunities for businesses based outside the capital. If you’re in a regional hub, be prepared to leverage local support, tap into networks of investors with specific regional knowledge, and make the case for why your business is positioned for growth in your local market. 

Whether you're raising VC or PE capital, it’s important to keep the long-term in mind. Both types of investors are looking for strategic growth and successful exits. That means you’ll need a clear roadmap for how you plan to scale, generate revenue, and eventually provide a liquidity event for investors—whether that’s an initial public offering (IPO), acquisition, or other exit strategies. 

Raising capital through venture capital or private equity is never a linear process. It's filled with challenges, inefficiencies, and hard decisions, but the right knowledge and strategic focus can significantly increase your chances of success. Understanding the regional dynamics and focusing on the right type of investor for your business’s stage and sector is crucial. Whether you're in the early stages or looking to scale, understanding the realities of the equity raising process—and the inefficiencies that often come with it—will give you the edge you need to successfully secure the capital your business deserves. 

If you are looking to raise capital for your business and have any questions on how to successfully navigate, please get in touch with Lee Humble, UK Head of Corporate Finance, via the form below. Alternatively, reach out to your usual Azets advisor.