The equity piece: bringing in a partner or investor

Every other piece in a funding mix has to be paid back. Equity doesn’t — and that’s both its strength and its cost. When you bring in a partner or investor, they share the risk and the reward, often bring skills you don’t have, and never send you a repayment schedule. In return, they own part of the business for as long as they hold their shares.

What kinds of equity partner are there?

business.govt.nz lists a range of equity sources, from friends and family to venture capital and private equity. For most small and medium New Zealand businesses, the realistic options are:

Type	What they bring	Typical fit
Working partner	Money plus day-to-day work	Running a second site, a new division
Friends and family	Money, trust, flexibility	Early-stage or small amounts
Angel investor	Capital, experience, contacts	Early-stage businesses with growth potential
Equity crowdfunding	Many small investors	Consumer brands with a loyal following
Convertible note investor	Funding now, shares later	Early-stage, where valuation is hard
Venture capital, private equity	Large capital, structured growth	Much larger businesses — rarely relevant to SMEs

business.govt.nz notes venture capital typically targets commercialised growth businesses with large turnover, and private equity targets established businesses with substantial annual turnover — so for most owners reading this, the first four rows are where the real options are.

When does equity belong in the mix?

Equity is worth considering when:

• The goal is large relative to the business. Borrowing the whole amount would make repayments uncomfortable.
• The payback is uncertain or slow. A new product, a new region, a business that won’t earn for a year or two.
• You need skills as much as money. A partner who will run the new site, handle exports or bring key customers.
• Security is thin. No property, little trading history — equity can carry the early risk while a smaller loan fills the rest.

It’s usually the wrong piece when the goal pays back quickly and predictably — a stock order, a machine that cuts costs, a contract with a clear payment schedule. Giving away a permanent share of the business for a short-term need is expensive.

How does equity compare with a loan over time?

Illustrative only: a business earning $200,000 a year needs $300,000 for expansion.

• With a loan, it repays the $300,000 plus finance costs over five years, then keeps 100% of the profit and value.
• With a 30% investor, it repays nothing, but 30% of every future year’s profit and 30% of any sale price belongs to the investor — forever, unless bought back.

If the expansion works, the loan is usually far cheaper. If the expansion is risky, the investor’s share is the price of having someone else carry part of the downside. Neither is automatically right; that’s why many owners use both.

What protects you when bringing in a partner?

• A shareholders’ agreement, drafted by a lawyer, covering decision-making, dividends, what happens if someone wants out, and how disputes are resolved.
• A clear valuation — get independent advice before agreeing the price per share.
• Defined roles for working partners: hours, responsibilities, pay separate from profit share.
• Written terms with friends and family. business.govt.nz recommends formalising these arrangements with written contracts, and being clear whether the money is a loan or equity.

If you’re putting your own money in, rather than bringing in someone else’s, the guide on funding through your shareholder current account explains the mechanics.

Illustrative mix: a Nelson craft distillery expands

Illustrative only; no real business.

A craft distillery needs $500,000 for a larger still, a tasting room and export marketing. The owners have no spare property equity.

• A working partner with export experience invests $180,000 for a minority stake.
• Equipment finance on the new still: $190,000.
• A landlord fit-out contribution for the tasting room.
• A small business loan for the remaining $80,000 of marketing and working capital.

The owners keep majority control and borrow far less than the full amount. If you’re weighing equity against borrowing, a real person can talk through the loan side of the mix.

Where does equity sit in a remix?

Usually after you’ve pushed the cheaper, non-dilutive pieces — supplier terms, deposits, asset refinance — and looked at what a loan could carry. Equity then fills the part that’s too big or too uncertain for debt. See ways to finance business growth, the young business stack and worked mixes for buying a business and opening a second site.

What questions should you ask a prospective partner?

Before anyone writes a cheque, have the awkward conversations:

• What do they expect back, and when? Dividends every year, a sale in five years, or a long-term stake?
• How involved will they be? Board seat, weekly meetings, day-to-day work, or silent money?
• What happens if they want out? Who can buy their shares, and at what price?
• What happens if the business needs more money later? Will they contribute, or be diluted?
• What happens if you disagree? Deadlock clauses matter most in 50/50 arrangements.
• What else do they bring? Contacts, customers, industry knowledge — or just money?

The answers belong in the shareholders’ agreement. A partner who won’t discuss them now will be harder to deal with later.

Considering a loan alongside an investor?

Most equity deals still include some borrowing. If you’d like help with that piece, start your enquiry — there’s no credit check to start, your details aren’t sent out to a list of lenders, and a real person will talk it through. Please tell us about any investor arrangement on the form so we can suggest a loan piece that fits around it.