Why equity investment is growing in popularity, but is not for everyone

First, you have to be brave to get into a freezing pool at the end of October, but once you are in (or maybe once you are out), the endorphins kick in and you feel great.

The same could be said for equity investment: you have to be brave and bold to explore the opportunities that are currently out there.

Embracing a different funding model with equity partners requires executive teams and boards to step out of their comfort zones of traditional debt funding and grant.

However, it could be an important part of the solution to the ever-increasing demands on housing providers’ resources and the financial constraints highlighted in the regulator’s annual Sector Risk Profile.

Second, neither activity is without risk – hypothermia on the one hand, or detrimental financial arrangements with the potential for solvency and regulatory impact on the other.

When boards are investigating these alternative options, they need to understand those risks and to explore them from all angles. Know your limits, understand the financials, know what the exit strategy is for your investors and for your organisation and make sure they align.

There are always risks in life, and introducing new stakeholders to your business is a significant risk, so you need to make sure it is a risk you can work together to manage.

Third, and I say this as a lawyer, do not underestimate the importance of rules and governance. It is crucial to be prepared, consider all the issues and to follow the rules.

In cold-water swimming that means having the right equipment (woolly hats) and not exceeding the recommended time to be in the water (a few seconds in the depths of winter).

In equity models that means paying attention to the rules and regulations that apply to registered providers, such as companies law, charities law, tax law and regulatory standards, and ensuring any partnership arrangements accurately reflect them.

So, while equity investment (like cold-water swimming) is growing in popularity, it is not for everyone.

It can be beneficial, but it is also risky, so wrap up warm, pop on your woolly hat and take the plunge – carefully.

Louise Leaver, partner, Bevan Brittan