Finances are critical to the operation of a business, and equity financing is an excellent way for a business to raise capital. It is the process whereby a company sells a portion of its equity to investors in order to raise money. When an investor purchases shares of a company, they buy part ownership of the company. When this occurs, a company has no obligation to repay the funds received. In effect, the investor assumes risk by purchasing part ownership of a business, expecting that their monetary contribution will help the company grow. Since funds acquired by equity financing do not need to be repaid, the company has more capital available to grow the business.
Types of Equity Financing
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Individual investors
Individual investors, including family and friends, can typically provide early financing to help a small business.
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Venture capital
Capital investment companies typically employ venture capitalists. Venture capitalists usually invest large amounts of money in exchange for a significant percentage of ownership in the company.
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Angel investors
Angel Investors are typically high net-worth individuals who provide financing to businesses that they see potential in. Angel investors do not usually invest as much capital as venture capitalists, and, as such, do not typically request a significant percentage of ownership in the company.
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Public offering
In the case of equity financing, a public offering is the sale of equity shares of a business to the public. A public offering allows the general public to purchase varying amounts of shares depending on how many shares they want to buy.
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Crowdfunding
Equity crowdfunding is the process of raising money from the public. This is where a business offers equity to the public in exchange for small investments.
Baker Newby LLP has lawyers experienced in all aspects of business financing.
We would be happy to advise you on the best financing strategies for your business needs. Contact us today for an initial consultation!