Equity financing

When it comes to funding businesses equity financing is one of the options. It means raising capital through selling shares of a company. Equity financing is different from debt financing where you company gets a loan and promises to repay it with interest. It comprises a wide range of activities in scale and scope, as a form of close partnership, crowdfunding platform to initial public offering. Money raised trough equity financing might be used to fund short terms needs of the company as well as the long term expenditures. Even though it is most often associated with public companies listed on exchange, private companies use equity as a means of financing.

Equity financing includes different types of stock from proffered stock, preferred convertible shares to common stock. Start-up companies often need financing to set their business in motion but because they carry a good amount of risk are not always able to get a financial loan from a bank so they turn to equity financing. Companies don't stay at start-up phase forever so as the business grow company can offer more rounds of offerings. Depending in which stage of development is company it can attract different types of investors. Startups generally attract angel investors and venture capitalist who favor preferred convertible shares. when companies decide to go trough initial public offering they offer common share stock to retail and institutional investors. Equity financing is highly regulated by state and federal laws primarily to protect investors from fraud.

With equity financing companies have a chance to raise a significant amount of capital that will help company to launch their business and fulfill their potential. Flexibility in distribution is another benefit. If you don't make profit you don't have any debt towards your investors. Besides money you can gain valuable equity partners that have vested interest in seeing you succeed. On the other side partners might mean giving up absolute control over important decisions and if your business is doing well it could mean that you will have to split the profits. Also equity fundraising can be time consuming and laborious work that can distract you from other important tasks for you business.

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