Whatever is the reason why you want to learn about equity financing, you are exactly in the right place. More often than not, equity financing is resorted to by companies who need cash for starting up in business operations or for funding a particular business project. It is important to note that a certain business may utilize equity financing not just once but several times in its life depending on its financial status and need. However, it is clearly not recommended to often depend on borrowing to finance is basic and main operations.
How It Works
When it comes to equity financing, what is usually involved in this process is the sale of stocks, equities or instruments such as common stock, preferred stock, equity units, and convertible preferred stock among others. The main thing in here is that the company issues different kinds of stocks, equities or instruments in order to gather the right amount of funding necessary to begin with business operations and allowing it to further. As is usually the case, start-ups do have the ability to attract business investors since they are providing them with gateways to making money. Basically, it is a two-way opportunity that is being provided in this set-up – the investors are given the opportunity to make money from their investments and the business is given the opportunity to operate using the right amount of funds.
Another essential element that must be taken into account in this note is that equity financing may not be resorted to once in the life of the business. This means to say that this is not just for the start-ups. Even when the business earns experience, becomes mature and goes through some growth, it may still opt to use equity financing for its operations. The good thing about equity financing is that it comes with several different levels. Businesses, whether start-ups or not, may opt for the level that fits to their situation and need. The difference lies in the type of equity or instrument which the company issues. Not to mention, of course, the type of investors to whom the equities will be offered.
There are different kinds of investors which the company should choose between when it comes to offering equities and instruments. For instance, there are so called individual investors. These are usually composed of friends, members of the family and colleagues. Apparently, individual investors can provide a lesser amount of capital. More than that, they also have less experience in the industry, do not have much business skills, and knowledge with business contribution.
Angel investors, on the other hand, are other types of equity financing investors. They are rich individuals who have the interest to provide finances to in-need business for the purpose of acquiring huge returns. The benefit of reaching out to angel investors is that they really have the substantial amount of money, as well as connections and knowledge, that could be contributed to the business. Venture capitalists, initial public offerings, etc. are the other types of equity financing investors that can be hunted from the market.