Don’t give away too much of your business — like I did - Sunday Times

External funding can reduce risk, provide growth capital and another layer of expertise. But you must time the move right and not give too much of your equity away

He may not have won, but the business of darts will most certainly enjoy a huge popularity bounce in the wake of the incredible performances in the World Darts Championship by teenager Luke Littler. The chances are that if your local pub has a darts board, then the queue to play is already longer than ever — a result of the sport’s extraordinary growth since 2001.

That’s when the Professional Darts Corporation (PDC) secured long-term investment from Matchroom, the promotions company run by Barry Hearn and his son, Eddie, and the sport began transforming itself from pastime into celebrity-studded media phenomenon, with tournaments across the world.

Over the past decade alone, the PDC has increased its annual profits from £1.9 million to £12.3 million. No wonder it’s attracting interest from private equity investors.

Luke Littler could only take second prize in the World Darts Championships but his run to the final generated huge interest in the sport itself

Finding the right investor at the right moment is crucial. Over the past 30 years at HomeServe, I’ve benefited from three different types, each acting as a catalyst for growth. More important — and it’s something many medium-sized businesses don’t appreciate — the investments provided more than financial muscle. As I’ve learnt to my cost, as well as benefit, it should never be just about the money.

First came trade investment, which kept HomeServe afloat in the early days. South Staffs Water provided early stage growth capital in 1993 when it invested £500,000 for half the business together with back-office support, call-centre management, software and telecoms expertise.

Then, in 2004, listing on the stock exchange enabled us to raise our profile and create a unique identity. Finally, Brookfield, the private equity investor, acquired us at the start of 2023 and helped us focus on long-term growth, value creation and a new strategy of owning home infrastructure.

All three brought increasingly robust and essential approaches to financial reporting. Rightly, anyone who invests money studies a business regularly — reviewing the numbers every month — and that discipline helps us to manage the finances and support opportunities for growth.

Today, I use these experiences to help medium-sized businesses step-change their own expansion, advising them on why and when to take capital, and from which kinds of investors.

The why is simple. First, it helps you de-risk, pay off the mortgage and accelerate growth, knowing that you and your family will not be left homeless if it all goes wrong. Growth capital also means you don’t have to worry about profits temporarily going into reverse when you hire additional senior staff, expand geographically or open retail stores.

Third, investment should bring expertise from your financial partner, such as coaching, mentoring and decades of advice forged at the sharp end of business — ideally, within your chosen industry.

The when is a little trickier — and here’s where I went wrong all those years ago, giving away far too much equity in desperation to keep the business afloat. I should have got my business model working before looking to raise external investment, keeping HomeServe UK smaller until we had perfected our approach with our own finances, instead of giving away so much of the business.

My advice to small businesses is stay small and keep testing and pivoting until you find the winning model and it’s profitable — without burning through lots of cash. When it’s your own money, you value it more and are more sensible about how it’s spent.

It’s why at Growth Partner, my investment business, we back only proven and profitable firms, not start-ups or early-stage non-profitable ones, preferring to work with #entrepreneurs focused on getting it right before getting the cash. I’ve seen many crowdfunded and venture capital-funded businesses in which the founders ended up with a minority shareholding because, with the model still in flux, they hadn’t negotiated from a position of strength. As a result, they diluted their ownership and diminished their incentive.

In terms of where to find capital, start with your own savings, or try to remortgage. Then seek out friends and family before heading to crowdfunding or venture capital to get your model right. Private equity will be applicable once your business is generating a reasonable profit, while a stock exchange listing is an option when the business is bigger still.

In my work at Growth Partner, the main focus is on taking large minority shareholdings in already-profitable businesses. With a £100 million war chest of my own money and a team of nine, Growth Partner is working with 11 great entrepreneurs, and we hope to double that in the future. We are investing in leaders, not just businesses — those with resilience, persistence and an ability to learn from their mistakes and put the ambitions of the business above their own.

Other successful business people hopefully feel the same as I do — that we should use our vast experience to supercharge the UK’s growth and the fortunes of younger generations. Experience, advice, guidance, contacts, investment… we have so much to give — not least, showing how to avoid the mistakes we made.

Entrepreneurship is not a solo endeavour, no mater how brilliant your idea. It needs smart partners and even smarter investment to hit the business bullseye. Just make sure you don’t relinquish too much equity or control too soon.