Equity Financing

Forms of Equity Financing


  1. Angels
  2. Venture Capitalist
  3. Other source of Private Equity Funds
Equity Financing

Overview


Some SMEs might not want to have any financial obligations in the form of debt financing. In this case, they can opt for Equity Financing. Equity Financing simply means by selling a portion of your ownership in the company to investors in order to obtain funds, in another words mean selling off the networth of the company.

These private sources or investors can come in many forms, more commonly from wealthy individuals, investment funds, or institutions. These investors will then be closely engaged with the company management and monitoring of the firm since they have a share in it solely for the purpose of financial returns either through dividends or capital appreciation.

This form of financing is helpful for start-ups as they do not have many assets as collateral for loans. This is also an opportunity to catch the attention of investors with the financial expertise or strategic partnerships to the table.

Equity funding is meant for partnerships and companies as sole-proprietors are one-man business, whereby the owner is the only investor. The amount of business you should sell depends on how much money you need to raise. You have to determine how much money you need before approaching the investors as selling away too many shares can lead the loss of company control.