Business Inside Out by Martin Towers: Right investor can transform a firm's fortunes

But it will not stop there if the business is viable and some runs put on the board. Government start-up funding can be available. Subsequent phases lead into the world of the professional and institutional investor who will seek a proper return on their investment and an equity stake.

To the entrepreneur this can cause a problem. The investment is needed but bringing in outside investors creates uncertainty and potential loss of control let alone the investor starting to meddle in the running of the business.

This scope for conflict and different agendas between owners is often the reason why viable businesses do not expand and grow as they should and are capable of. Entrepreneurs do not want to let go and often fail to see owning 50 per cent of a larger entity is a better place than 100 per cent of something much smaller.

Some business owners will look to maintain absolute control and resort to debt finance to expand the business. Greater leverage will increase risk and banks will only lend so much and for so long.

Other forms of debt finance can be entertained and whilst useful in funding growth can be expensive, complex and tricky to unwind.

The funding of growth is not necessarily a seamless process following a smooth straight line. The best way to do it is from within existing resources, in other words internally generated cash flow.

But during the early stages in a business life, this may not be possible as investment in the business is necessary to establish viability.

This could be brand building, it could be in research and development, it could be to expand into new markets abroad. It could simply be in hiring more people.

Because these events involve equity risk, banks don’t necessarily think it is their role to provide such finance arguing they don’t get an equity reward to compensate for taking on heightened equity risk.

In the UK banks rarely take an equity position and an equity risk, this is more common in some European countries such as regional banks in Germany.

In the UK certainly the average clearing banker is risk averse and not a natural equity investor.

The whole purpose of the public markets is to raise equity capital.

From institutions who likely manage corporate and personal pension funds seeking out returns and an income stream that fund the underlying pension commitments.

These fund managers are a completely different breed to the investment banker, typically more sanguine and mindful of the need to perform against benchmarks when meeting the pension trustees.

Martin Towers is the former finance director of Kelda Group, which was the parent company of Yorkshire Water, and former CEO of Spice PLC. He is now an early-stage business investor.