Equity financiers are attracted to development capital as this type of lending features reduced risk and sustains rapid growth
Having successfully passed the start-up stage, many organisations require funding for the next natural step of development. Taking on additional debt may not be an option, either due to existing debt levels or for lenders the lack of security.
Equity financiers are attracted to this type of investment due to its reduced risk and it's potential high level of return. Investment is made in trading businesses for potentially high-return ventures including product development, improvement of existing organisational infrastructure, or to develop a presence in new markets or to fund acquisitions.
Bringing new products to market is rarely funded from existing cash flows, with some industries requiring long and detailed research and development processes prior to launch. Equity funding can be the best way to solve this problem, and enable a company to achieve its potential whatever the type of product.
Purchasing new technology that shortens production and turnaround times, or enables expansion of a product range, can provide the impetus that takes a business to the next stage of development. Investment in IT infrastructure may also allow a business to improve its customer service levels sufficiently, so that it stands out from competitors on grounds of speed and efficiency include investment into staff also.
Moving into overseas markets
Expanding into new markets, whether in Europe or globally, requires extensive pre-planning and access to capital that does not compromise the servicing of existing market sectors. The availability of development capital helps to foster good relations with new customers abroad, to ensure their needs are met and orders fulfilled without complication.
Funders of development capital generally take a minority shareholding and do not become overly involved in management decisions, leaving the existing shareholders in overall control.