A Guide to Equity Investment & The UK’s Top-Funded Companies
26 May 2022
Up and down the country, there are startup founders looking for equity investment. They may have innovative business ideas, with ambitious growth plans and talented teams raring to go, but now they need the money to fund it all. In this guide to equity investment, we’ll find out the difference between debt and equity finance, how equity financing works, and the different types of equity investors you might come across in the UK. We also rank the high-growth UK companies that have raised the greatest amount of equity investment to date.
What is equity investment?
Equity investment is the process in which shares in a company are sold, in order to raise money (often to fund its next stage of growth). Equity investors will buy shares for a set share price, in return for a stake in the company, voting rights and a share of future profits.
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The difference between debt and equity finance
Startups have several options when it comes to securing growth funding, with alternatives such as asset-backed loans and revenue-based financing becoming increasingly popular in Europe. Generally, debt and equity finance are the two most common routes taken by high-growth companies in the UK, both of which we track on the Beauhurst platform.
Loan or debt-based fundraising involves borrowing money, usually from traditional lenders like banks and building societies, as well as government-backed funds, asset managers and other debt investors. This money will need to be repaid under certain conditions and, like a normal loan, these repayments will involve interest. But the attraction for startup founders and management teams is that control over their business remains the same. It may be more difficult for companies to raise money from lenders if they’re seen as being high-risk, however, which many early-stage startups will be by nature.
With equity financing, founders will be required to give up a degree of control over their business but there’s no obligation to pay back the investment. Instead, an equity investment is made on the basis that share value will increase in the form of capital gains, with investors receiving higher returns. As there is no loan involved, the risk to founders is lower, particularly those in need of funds larger than they are personally able to borrow.
How does equity financing work?
Equity financing can be secured from a variety of sources (more on that in the next section) and may come into play at different stages of a company’s evolution, from the earliest days of a startup’s journey or a more established company preparing to IPO on a public stock exchange. High-growth businesses, like those listed in this article, will typically complete several rounds of equity fundraising as a private company.
Once an equity investment has been made, investors will have a say in the direction of the business. It’s worth noting that anyone who owns more than 50% of a company’s shares will become a controlling shareholder—they’ll be able to control the management of the business through their majority equity stake.
Types of equity investors
There are several types of equity investors in the UK, with private equity and venture capital firms being the most active.
Venture capital firms (VCs) specialise in investing in the high-growth space, buying shares in private companies and then helping to increase their valuations. To inform their investment decisions, VCs look for past performance that indicates the potential for rapid growth and a high valuation.
Many VC fund managers (General Partners) have been startup founders themselves, and thus offer invaluable business insights, alongside equity finance. Venture capital firms also tend to take a seat on the board of directors as part of equity investment agreements.
Private equity investors
Like VCs, private equity firms are a type of institutional investor that raise money through fund investment from Limited Partners and then invest those private equity funds into businesses for a profit. A private equity firm will also usually lend their expertise and management skills to portfolio companies in order to increase profitability.
Private equity investments are well-suited to businesses that are profitable and have a track record of demonstrating growth. The investment strategy taken by private equity firms tends to be lower-risk than that of venture capital firms.
Corporate venture capital funds
Corporate venture capital is a type of venture finance where investment comes directly from corporations. Corporate venture capitals (CVCs) generally invest in smaller subsidiary businesses that are in a similar industry to them, making it easy to assist growth through existing knowledge and contact networks.
As well as a stake in the company, many corporate venture capital funds will look to benefit from their portfolio companies in other ways. This could be anything from gaining new market insights, expanding their market reach, or the specific technology being developed by the company.
Crowdfunding platforms are a way in which equity investment can be sourced from “the crowd”. The crowdfunding investment approach is very different to private equity and venture capital, with businesses raising smaller amounts of investment from a larger number of individual investors. It is a popular source of funding for B2C companies that can leverage strong brand loyalty from their customers.
In the United Kingdom, the most popular platforms for crowdfunding are Seedrs and Crowdcube. Crowdfunding platforms carry out a certain amount of due diligence on behalf of individuals, checking company pitches to ensure they aren’t misleading to investors, and as with peer-to-peer lending, all equity crowdfunding in the UK is also regulated by the Financial Conduct Authority (FCA).
Business angels are individual investors rather than funds or corporations. Typically high-net-worth individuals or entrepreneurs themselves, angel investors use their personal capital and expertise to back growing businesses. It’s also common for groups of angels to pool together funds or share introductions to each other’s contacts, in what’s known as an angel network or syndicate. Angel networks are well-placed to invest in companies at an earlier stage, due to their hands-on approach and typically smaller round sizes.
The 10 top-funded companies in the UK
Now that you know more about equity investment and the most common investors in the UK equity market, let’s look at where the money’s going. This list ranks the UK’s top high-growth companies, in order of the amount of equity funding they’ve raised to date, nearly all of which are startup unicorns valued at more than $1b.
01. Rothesay Life
Rothesay Life is a pensions insurance specialist that protects the pensions of employees of companies such as Asda, Telent and National Grid. The company provides insurance to protect clients’ employees, and also has a ‘buy out’ option, in which the employee’s pensions can be transferred fully into Rothesay’s care. These pensions are then invested with long-term safety and security front of mind. Rothesay Life has secured pensions for 830k people across the UK and has over £60b in assets under management.
Incorporated in 2013, the established-stage company has secured five equity fundraisings so far, amounting to £2.59b in total. Its investors include Government of Singapore Investment Corporation, venture capital firm MassMutual Ventures and The Blackstone Group. Rothesay is led by CEO and female founder Addy Loudiadis, MD Tom Pearce and CFO Andrew Stoker.
Britishvolt designs and manufactures lithium-ion batteries for use in electric vehicles, with the aim of ‘accelerating the transition to a zero-carbon future’. The greentech company is currently building a 30GWh battery gigaplant in Northumberland. Once Britishvolt has created its low carbon batteries, which it claims are some of the most responsibly manufactured in the world, it plans to focus on battery energy storage to provide solutions to businesses, homes and communities.
Founded in 2019, the growth-stage company has raised four equity funding rounds so far, from equity investors such as Carbon Transition, Cathexis Venture II and Glencore. And earlier this year, Britishvolt received an additional £100m in taxpayer money via the government-backed Automotive Transformation Funds to support its clean energy mission.
London-based Checkout.com develops software for businesses to process payments in multiple currencies. The fintech company allows businesses across the world to receive fast, reliable payouts that can be integrated with their choice of tech. It also allows users to get money to their clients faster, manage risk and fraud, add new payment methods, and get support from localised teams to help improve and adapt business performance.
Checkout.com was founded by CEO Guillaume Pousaz in 2019. Its mission is to enable businesses and their communities to thrive in the digital economy, from established to emerging markets. Today, it has 1,700 employees across 19 global offices, and has attended two business accelerator programmes: the Mayor’s International Business Programme and Tech Nation’s Future Fifty accelerator. The company has secured £1.36b in equity investment, across four funding rounds.
Revolut operates a digital bank which provides an app for users to track and send money, manage their budgets and trade cryptocurrency, as well as a range of other financial services. Today, the company has around 18m personal users and over 500k business customers, across 200 countries. Its personal accounts allow customers to manage everyday money, make investments, buy insurance and make purchases abroad. Meanwhile, Revolut’s business accounts accommodate multiple team members and different currencies, and allow companies to send and receive payments, manage expenses and invoices.
The leading UK challenger bank was founded by entrepreneurs Nikolay Storonsky and Vlad Yatsenko. It has participated in several prestigious accelerators already, including Seedcamp, Future Fifty and the Mayor’s International Business Programme. Revolut’s latest fundraising was a £578m ($800m) equity funding round in July 2021. Altogether, the company has raised £1.27b, across nine deals, with investors including Balderton Capital, DST Global and Index Ventures.
Inspired operates a group of independent private schools, across 20 countries and five continents. The company has a network of 70 schools, known as some of the highest-performing in the world, despite being non-selective. Inspired schools have a curriculum that focuses on three pillars: academic excellence, sport, and performing arts.
Founded in 2016, Inspired has secured four equity funding rounds so far, totalling £1.19b in equity investment. Its backers include TA Associates, Warburg Pincus and private equity firm Stonepeak Infastructure Partners.
Monzo is the second challenger bank in this list of top-funded UK companies. Its digital banking offering can be accessed via a mobile app, with users able to track and budget their money, open a savings account and access loans and other financial services. It also offers numerous account types such as joint accounts and business accounts.
Notable Monzo features include saving pots, as well as the ability to switch energy providers and split bills with ease. The company also offers Monzo Premium, which gives its users extensive travel and belongings insurance, and interest on their money. To date, more than 5m people have opened a Monzo bank account.
The company employs over 1,600 people from its London or Cardiff offices, or remotely. It has secured an impressive 17 equity funding rounds so far, with backers such as Abu Dhabi Growth Fund, Accel and Alpha Wave Ventures (to name a few). This brings Monzo’s total equity investment to £927m, just shy of the billion dollar mark.
Hopin operates a platform that allows businesses to create online networking events. Events can be conducted fully virtually, in-person, or using a hybrid model. Hopin’s platform enables users to build engaging online events from start to finish, at scale, as well as landing pages, centralised registration and ticket management for in-person events. It can also be connected to users’ CRM and marketing automation tools.
Founded in 2019, Hopin grew exponentially during the COVID-19 pandemic, as businesses were required to adapt their way of running events. Despite its past performance, the London-based company has reportedly had to make 12% of its workforce redundant to boost efficiency. In all, Hopin has secured seven equity funding rounds, amounting to £761m. It has received growth capital from the likes of Accel, Northzone Ventures, Salesforce Ventures and Seedcamp.
08. CMR surgical
CMR Surgical develops robotics for use in surgical procedures. The company believes that robotics can bring minimal access surgery to more people around the world. Its product, Versius, can be used virtually or in-person, and allows for freedom of port placement to suit each patient. It is designed to be moved between departments in hospitals and has a small-scale design suitable for nearly any operating room. With high levels of precision and control, the tool is designed to easily assist surgical teams.
The Cambridge-based firm has raised £743m worth of equity finance so far, across four funding rounds. Its existing equity investors include ABB Technology Ventures, Chimera Partners and LGT Capital Partners, and it is also the medical device partner of ParalympicsGB.
09. Starling Bank
Starling Bank provides a mobile-based current account which allows users to track their finances in real-time, with a long list of financial services also on offer. The challenger bank provides personal accounts and business accounts, with budgeting and savings tools like automatic round ups, no payment fees at home or abroad, a mastercard debit card, 24/7 support and help with switching banks. Today, someone joins Starling Bank every 39 seconds, and its business accounts boast over 450k users.
Founded in 2014, Starling Bank has secured nine equity funding rounds so far, raising money from Goldman Sachs Growth Equity, Merian Global Investors and Qatar Investment Authority, among others. On top of its £715m in equity investment, the bank has also received a £100m Capability and Innovation Fund grant and attended two accelerator programmes.
OneTrust develops software for its 12k business customers to manage their security, privacy and third-party risk. It has a large roster of products to support teams from IT and Legal right through to Marketing and HR. These cover areas such as privacy management, data governance, preference and consent management, third-party risk, ethics and compliance, and ESG.
The company was incorporated in 2001 and now has over 1k employees. OneTrust has raised a total of £699m in equity investment, from four funding rounds, with investors such as Coatue Management, Insight Partners and venture capital firm Softbank Vision Fund.
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