What is equity financing?
It refers to the shares of a sale of the company to raise the capital. The people who also invest in purchasing shares are also purchasing ownership rights to the company. Equity financing generally refers to the sale of all equity objects, such as common stock, lands, shares, and stocks. These are a type of security that represents ownership of a company.
Why is equity financing important?
Equity financing is especially an important sector in a company’s startup stage to its financial assets and also includes initial operating expenses to operating expenditures. Investors make a good profit by receiving dividends or when their shares have good value in the market.
What are the major sources of equity financing?
If your company is still private, a fund can be raised from angel investors., or crowdfunding platforms. It is a method of investment where capital can be raised using start-ups and early-stage companies or from corporate investors.
Angel investors
They are the wealthy individuals who purchase stocks in business that they believe to make higher returns in the future. The individuals bring here their experience, connection, skills, and knowledge which helps the company be a success in the long term.
Crowdfunding platforms
This platform allows for several people in the public to invest in the company in small amounts. People can decide whether they have to invest or not in the companies because they believe in their ideas and hope to make it back in higher returns. Their main target is to reach a goal.
Venture capital firms
It is a group of investors who invest in a business they think will grow in a particular space and will appear later on stock exchanges in the future. They invest more money and intake they will earn a great income stake in the company. This term is generally called private equity financing.
Initial public offerings(IPO)
Where the company allows the public to buy the shares by which they can raise their funds for raising the company successfully. Usually, the companies offer their shares to the public for trading in the capital markets.
Advantages of equity financing are:
Mainly it offers companies an alternative funding source in the name of debit. Banks didn’t allow large loans for start-ups in that case they can take funds from angel investors, crowdfunding platforms and IPO, etc.
Those investors didn’t expect immediate returns, instead, they focused on long-term investment. They just focus on the business rather than focusing on debt.
Multiple connections can also help your company to grow personally. Their successful backgrounds allow them to provide invaluable assistance in the form of contacts, and experience. Many angel investors or venture capitalists will guide the company in their manner. It is the most needed period in the start-up where no one will support you financially or personally.
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