An equity fund investment allows you to acquire partial ownership of a private company or a startup by owning some of their shares. Investors generally earn a return on their investment when a company they have shares in decides to distribute its proceeds after liquidating some or all of its assets. If the company has met certain obligations, they can then sell their shareholdings to other investors.
For example, let’s say a startup founder had an idea for a new product and wanted to create a company, but needed capital. A starting point might be for the founder to ask equity investors for funds. The founder would first have to convince these investors that the business idea can work and will be likely to bring growth.
The startup founder offers 10% of the company for £450,000. An investor counters the offer by asking for 30% of the business for a £450,000 investment. The founder agrees, and this means that the investor will own shares equivalent to 30% of the business.
