101 guide to Equity financing

Equity is financed if a corporation gives an investor (or investors) a proportion of its shares in exchange for money. The investor takes a gamble in equity finance. It is understood that they will lose their investment if the company does not do well. This contractual structure varies from the loan agreements in which creditors are reimbursed in compliance with the terms of the contract.

Companies from all industries can be good equity funding candidates, as long as they have an opportunity for significant growth through the added capital of the investor. Unlike a lender, equity investors do not seek regular payments but are looking instead for an event for profit-making purposes (such as a sale of a corporation or public offer), which is one cause of an attractive investment by technology start-ups.

Reasons to choose equity financing:

  • You can easily increase profits with the infusion of capital investment in your business model.
  • You are prepared to give a potential investor in exchange for capital to your company.
  • You are glad to provide a decision-making position for the investor.
  • You see the value of a more professional voice to help steer your business.

Types of equity financing:

  • Angel Investors:

Angel investors are individuals who invest their capital in other firms. Some angel investors work alone; others work in a network. They often give not only money but also guidance and valuable advice when signing up to invest. This is why angel investors are highly attractive and usually take their time to determine which businesses to invest in.

  • Venture Capital:

Venture capitalists are individuals or companies that manage funds to invest in new enterprises. Modern VC companies prefer to concentrate on young, fast-growing enterprises, usually technical start-ups. They usually only care about high-value investments (almost always millions of dollars rather than thousands of dollars).

  • Friends and Family:

Friends and family can be sources of capital spending because they usually are optimistic and eager to support you. It is important to understand your relationship with your potential investor before asking your friends and family for investment. Do not take shortcuts and try to prevent a formal agreement between your family member or your friend.

Pros to Equity Financing:

  • In comparison to conventional banking funding, equity is not routinely paid for. Investors look for a potential capital event and the ability to make a profit.
  • Equity investors also give advice and tips that can help your business grow, particularly angel investors.
  • It will be simpler for friends and family to secure early investment because they know you personally and can be very happy to be involved in your success.

Cons to Equity Financing:

  • Tensive relationships can be formed if you accept investing from friends and family, especially if you cannot return on their investments.
  • The search for an appropriate equity investor can take longer than requesting a loan, and the process may take more time.
  • The taking of equity investment may have long-term implications. You lose exclusive control of future business decisions when you give up a significant shareholding in your business.


see also : Introduction To Investment Advisor: SEC Audit

Leave a Comment

Your email address will not be published. Required fields are marked *