Private Equity and Venture Capital as a Way of Raising Finance: Case Study of Innocent Drinks - Investment Essay Example
There are many ways of raising finance for the startup or expansion of a business - Private Equity and Venture Capital as a Way of Raising Finance: Case Study of Innocent Drinks introduction. This paper will examine two ways of raising finance which are venture capital and private equity. They provide capital to a firm in exchange for shares in business. The differences between them are amount and time of raising finance. Innocent Drinks was chosen as a case study because innocent drinks raised finance using venture capital at first and then continued with private equity.
Firstly this essay will look at the literature review on raising finance and then it will look at Innocent Drinks case study, and finally draw a conclusion about raising finance. It has been found out that most entrepreneurs approach private equity and venture capital and are happy for improvement in their business activities, the reason for that is that private equity and venture capital investors provide company with more clients, suppliers and banks (Banerjee, Nath and Sahu, 2009).
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It seems like another reason of them being attractive is that it is very important source for companies, not only they are followed by high-income, but also private equity improves corporate governance structure and management level (Suli, 2009). On the other hand Masuli and Thomas (2009) claim that, there is a big risk for the investors, as they might not get return from their investment, so companies need to give good incentives to get finance. However they add that private equity strengthen shareholders role by reducing board size, improving information flows to board and increasing control over managers.
Study by Banerjee, Nath and Sahu (2009) showed that these ways of finance not only help businesses, furthermore, they increase growth and create jobs, in the view of fact that 2000 private equity and venture capital investors have invested more than €270 billion in over 56000 companies in Europe. This means that many companies raise their finance through venture capital and private equity. It can also be seen that there are some risks for investors and some obstacles for companies, however private equity and venture capital is very good way to raise money.
It gives growth boost and also extra help from investor is provided. The case study of Innocent Drinks Company was chosen, since it is very good example of a company raising finance and benefiting from private equity and venture capital. ‘Innocent’ was first launched in 1998 with the idea that every product will be 100% natural (Innocent drinks, 2011). Since then it have grown into a company that is presented in 13 countries, employs 250 people and have turnover over ?100 million (Marketing Week, 2009). Raising finance played crucial role in development of Innocent.
Design council (2010) states that after long time of searching for finance got ?250,000 of venture capital from a rich businessman. This investment helped them to get their company going and make serious improvements in term of getting their product to the customers. Alacron Cammile (2008) states that ‘Innocent’ had problems and their sales decreased from ?6. 3m in the July compared with ?3. 5m in august 2008. ‘Innocent’ have decided to fix this problem by raising private equity. ‘Innocent’ have agreed to sell share in their company that worth around ?30m to Coca-Cola Co (Beverage Industry, 2010).
In this case private equity first will help ‘Innocent’ to expand and increase their sales, second they will have help of one of the biggest beverage company in the world. In conclusion, from case study of Innocent Drinks it visible that private equity and venture capital is very important for businesses. It not only helps them to start up and cope with their problems but also increases their influence in a particular market. ‘Innocent’ has started growing with help of venture capital and solved their problems by using private equity.
Alarcon, C. (2008). Innocent seeks investor to boost smoothie sales. Marketing Week 31 (43), p. 61. Alarcon, C (2009). Coke takes 30m stake in Innocent. Marketing Week 32 (14), p. 14. Beverage Industry (2010). Coca-Cola acquires majority stake in Innocent smoothies. Beverage Industry 101 (5), P12. Banerjee, P. , Nath, A. and Sahu, R. (2009). Trends in private equity and venture capital investments with special: focus on the booming India growth story. Journal of International Commercial Law & Technology 4 (2), pp. 128-142. Design Council (2010).
Innocent drinks: creative culture and strong brand. Available at: http://www. designcouncil. org. uk/innocent (Accessed: 22. 10. 2011) Innocent Drinks (2011). Our story. Available at: http://www. innocentdrinks. co. uk/us/our_story/index. cfm (Accessed: 20. 10. 2011) Masulis, R. W. and Thomas, R. S. (2009). Does private equity create wealth? The effects of private equity and derivatives on corporate governance. University of Chicago Law Review 76 (1), pp. 219-259. Suli, Y. (2009). Study on exit mechanism for private equity investment. Canadian Social Science 5 (2), pp. 18-24.