Equity Funding
Equity financing is when you raise money by selling shares in your business, either to your existing shareholders or to a new investor. This doesn’t mean you must surrender control of your business, as your investor can take a minority stake
Equity financing is a solution when established financing methods aren’t available due to the nature of the business. Traditional lenders may not extend loans to companies they consider too new or risky. New businesses interest angel investors and venture capitalists especially if the companies provide a growth potential.
With equity financing, companies avoid adding debt and don’t have a payment obligation. Companies may also receive valuable resources, guidance, skills, and experience from investors. Equity financing can raise substantial capital to promote rapid and greater growth, making the company attractive to potential buyers.
Investors assume risk when providing equity financing so the profits for business owners are reduced. Moreover, investors may want to be consulted whenever the company makes changes. In exchange for the large amounts that angel investors and venture capitalists invest, business owners forfeit a percentage of ownership and control.