The typical way to raise funds for a startup is debt financing that involves getting a private loan or a bank loan. There is an alternative which is seeking equity financing by issuing your company’s stock. Here, you sell your company’s shares to investors, getting cash in return, and your investor gets a chance to make high returns.
Advantages of Equity Financing
One advantage of equity financing is cutting out the bank as a partner. You get to use the cash from equity investors to run your business rather than spending money repaying loans.
In case your business fails, you still have to repay a bank loan. However, when it comes to equity financing, should your business fail, you are not required to repay the original investment.
Disadvantages of Equity Financing
Equity is not the ideal solution for businesses seeking short-term cash. Investors are interested in something long-term to get a return on their investment. Because you are selling your company’s share, you are also giving away some control over your company.
Sources Of Equity Financing
Venture Capitalists- These are organizations that invest in growing industries to make profits. A venture capital firm comes with experienced people in running a company but also takes significant control of the company.
Angel Investors-They invest in specific companies that they have a personal interest in. Their equity arrangement is the same as venture capitalists.
Initial Public Offerings- You can raise funds by offering your company’s share to the public.
Corporate Venture Capital- In return for a stake in your company, you get capital from established companies.
When looking for investment for your startup, some of the things you should have in mind include:
When making the first equity offerings, assure first-time investors that their stake in your business will not become diluted later on when you offer more shares.
S- Corp or C-Corp- These two setups for a company have several differences that come with their advantages and disadvantages. You have to choose which setup is ideal for your company.
Once you have understood equity financing, you can decide whether this is ideal for your business. As you look for funding for your company, consider Evolt Capital to get financing to grow your business.