Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of MRW, please enable cookies in your browser

We'll assume we have your consent to use cookies, so you won't need to log in each time you visit our site.
Learn more

Feature: The importance of equity finance

The Government has pledged that, by 2018, the UK must recycle at least a third of its household waste, almost double the amount we currently recycle. To achieve this goal, it is estimated that around £6 billion-worth of investment will be needed just to increase this country's reprocessing capacity alone.

Such tough targets will require a much bigger and more commercially viable recycling industry than we currently have. The Waste and Resources Action Programme (WRAP) predicts that the UK recycling market will have to double over the next 15 years, turning into a £20bn to £30bn a year business.

As an industry that needs to drive both major innovation and rapid growth, the availability of equity finance to help fund the developments needed for the sector is essential. A large number of recycling businesses will need to find funding for a wide range of reasons: from start-up companies looking to turn innovative products and new technologies into commercial reality, through to existing recycling companies that need to support growth and expansion plans.

If the recycling sector is to grow successfully, then it will also have to become more efficient and achieve greater economies of scale, perhaps as a result of acquisition or consolidation among existing players. The UK is also a prime target for overseas recycling organisations looking to expand beyond their own shores, bringing proven technologies and expertise to this country. Equity finance can also play an important role in helping to realise both of these developments in the market.

In simple terms, equity finance is a way of raising money to invest in a company by selling a shareholding in the business to the investor.

Equity finance can be raised from individual investors (commonly known as business angels), an institution (perhaps a venture capital fund) or from floating the company. But the bottom line is that all equity investors expect to see an increase in the value of their investment through a rise in their share of the company. It's also usual that equity investors will want at least some sort of say in the management of the business, usually with a seat on the board.

Equity finance can be used in different stages of a commercial project's life, from seed capital, perhaps supporting the initial research into a business idea, through to the actual start-up funding or financing expansion plans. At the other end equity finance has seen major growth in recent years in the area of management buy-out or management buy-in activity, where investors fund the acquisition of a company by a group of internal or external managers. However, equity finance can be used in many different development, growth or restructuring scenarios.

Venture capital is a particular type of equity finance in which investors aim to achieve high and fast growth by investing in early stage companies. Venture capital can bring considerable benefits, such as dependable and flexible capital investment, usually on a long-term basis and typically until the business is sold.

Equity finance can provide much greater flexibility than debt finance such as a loan, where the finance is usually linked to some form of security and subject to fixed regular repayments. Furthermore, if a business fails, an equity investor stands to lose everything alongside the other business owners, so they have an in-

centive to work with the management to make the business successful.

In addition, as the organisation providing the finance will usually take up some kind of board position, equity finance can als

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.