Equity Financing

The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation.

Types of Investors:

  • Family, Friends and Fools: Most entrepreneurs have learned that it’s almost always quicker and easier to get cash from someone you know, rather than angel investors or professional investors (VCs). In fact, most investors “require” that you already have some investment from friends and family before they will even step up to the plate… Read more
  • Angel investors: Small businesses looking for financial help from an “angel” often turn to individuals willing to invest in promising, start-up opportunities. Angel investors can be a good funding source to consider after you’ve tapped your friends and relatives. But angels usually don’t write blank checks. They’ll want to see progress and a way to exit the deal down the line with meaningful profits. Read more.
  • VC investors: What It Is: Institutional venture capital comes from professionally managed funds that have $25million to $1 billion to invest in emerging growth companies.
    • Appropriate for: High-growth companies that are capable of reaching at least $25 million in sales in five years.
    • Best Use: Varied. From financing product development to expansion of a proven and profitable product or service.
    • Cost and Funds Typically Available: Expensive. Institutional venture capitalists demand significant equity in a business. The earlier the investment stage, the more equity is required to convince an institutional venture capitalist to invest. The range of funds typically available is $500,000 to $10 million.
    •  Ease of Acquisition: Difficult. Institutional venture capitalists are choosy. Compounding the degree of difficulty is the fact that institutional venture capital is an appropriate source of funding for a  limited number of companies. Read more

     

    How Angel Investing Is Different Than Venture Capital