Equity Funding refers to the issue of our shares in exchange of new investment/cash investment. It is usually done by selling shares/stocks of our company to the new investors who wish to have a part of ownership in the company.
One of the major reasons for doing equity funding are:
- Lack of revenue or no revenue
- Desire to have exposure to expertise and professionals
- For selling a stake in the company with potentially higher costs to achieve quicker and greater growth.
How equity funding is done?
The following are the resources from where equity funding could be achieved :
- Friends or family
- Corporate funding
- Debt Funding
- Crowd funding
- Government funds: The SIDBI in India provides the equity type assistance to entrepreneurs for setting up new projects through national equity fund scheme.
- Venture capitalists
Benefits of equity funding:
The equity funding helps the entrepreneur by providing investment for the business, without worrying about repayment regularly.
The investors are benefitted once they decide to take high risks by investing in the new project/company, they get their profits in the form of dividends. They own a share of the company and when there are profits, they have a small ownership in the profit as well. Their money is paid back to them in the form of dividends.
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