Equity Financing

Equity Financing

During the process of business management and expansion, the company periodically needs additional financial resources. In such cases, the most relevant way is debt financing or equity financing. Each source has its advantages and is very important for future growth.

Equity financing is very common and often used as a method for start-up businesses. It is a way to raise capital by selling company stock to investors, also additional shares can be issued. This also means that investors get ownership of this company. They take part in decision making and part of management. The ownership can be given to friends and family for small businesses or to the public through an initial public offering (IPOs) for large-cap firms, leaders in their industry. Grown-up and diversified management structure can have its pluses, as the investors have participated in the financial aids; they are interested to grow up business.

Many startups used the method of equity financing and many of them were quite successful.

There are several main types of Equity Financing:

Angel Investors One of the most common ways to find new financial resources for start-ups is Angel investment. Angel investors are wealthy individuals. They invest their money in a very early stage of a start-up, even if it is difficult to measure the project. Their investment plays a huge role in the formation of future companies.

(For more detailed information connect to  DOC. Angel Investors)


Venture Capitalists Venture investment is a very common form around the world. It comes from the middle twentieth. The word “venture” means “risk”. This totally describes venture capital – it is a risky investment in new projects and new companies.  Venture investment means to put investment in new ideas and support them in development. Venture business requires good knowledge, funds, and hard work. If it gets successful, it will generate huge profits.

 (For more detailed information connect to  DOC. Venture Capital)


Crowdfunding Developing internet and web sources plays part in funding too. There is a way to reach a large network of potential contributors online and use their resources; this is called Crowdfunding.

In this way, start-ups can offer their new idea, new product or service to investors online and an investor can find new entrepreneurs very easily.

.(For more detailed information connect to  DOC. Crowdfunding)


Initial Public Offering One very famous form of getting more funds is processing IPO (Initial Public Offering) – when for the first time, the company makes shares available to the public for purchase. IPO is when a company issues equity – company holders make ownership of company available and in exchange for that ownership the new shareholders pay some amount of money

 (For more detailed information connect to  DOC. IPO (Initial public offering)


Private Placement For companies, the way to attract funds is very important during the financing. For this, they use Initial Public Offering (IPO) or Private Placement. While the IPO means offering the company’s shared stocks to hundreds or thousands of investors, the private placement is focused on a limited number of investors. The two main differences between these two offerings are the 1st – number of investors and 2nd – less regulation in case of the private placement.

(For more detailed information connect to  DOC. PRIVATE PLACEMENT)



Equity Financing

Advantages of Equity Financing

Equity financing, as a resource to attract the funds, has its own advantages: 

  • The very meaningful part is that the investors invest in shares. As they get part-owners of the company and not creditors, in case of bankruptcy, companies do not have to pay back that money. 
  • The advantage is also the ability to have more liquid cash –  as companies do not have to make monthly payments. 
  • As investors understand that it is very meaningful to give time to the business to build itself, they invest without much pressure. 

Disadvantages of Equity Financing

Similarly, there are a number of disadvantages that come with equity financing, including the followings:

  • Equity financing in most cases means having a new partner and sharing company ownership with that new partner. The riskier is business, the investor might ask for more part of the business ownership.
  • Also, the partner is taking part in decision makings and the company management process.

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