A number of businesses and commercial enterprises need bigger financing in comparison to what may be offered by the business angels. However they do not require the extent of financing that the venture capital funds would take into account. The gap arising between these 2 financial conditions is termed as the equity gap.
In these circumstances, the commercial enterprises may want to move towards the private equity firms for assistance. These firms are institutions, which are involved in investing and handling of investments and they have a propensity to emphasize on MBOs (Management Buy-Outs) and MBIs (Management Buy-Ins).
In a number of countries, the governments are introducing equity finance plans for bridging the equity gap and this is usually done with the help of enterprise capital funds or ECFs. ECFs are forms of business funds, which invest a blend of public and private funds in small scale commercial enterprises with significant development who are looking for risk capital funds.
A number of enterprise capital funds were launched in the United Kingdom in the year 2006 with a substantial amount of funds invested by the government. In the United Kingdom, there are other alternatives if the funding requirements come within the equity gap. The RVCF or regional venture capital fund plan is targeted at offering risk capital funding for small and medium scale enterprises, which have excellent development potentials.
A portion of the financing is rendered by the government and the rest is derived from the investors in the private sector.
In Scotland, a variety of equity finance approaches have been taken. The funds involved in this type of ventures include the following :
The Scottish Co-Investment Fund
The Scottish Venture Fund
The Scottish Seed Fund
All these funds offer equity investment options in firms with substantial profitability.