Equity investment is one of the most-employed routes that entrepreneurs use to expand and maximize the returns on their business. In the current economic climate, it has become crucial for business owners to take calculated risks to keep the business moving forward. Taking risks can help an entrepreneur to achieve the proposed financial targets at the expected time. Equity investment is a safe way to approach such risks.
If floating your business on the public markets has been your long-term goal, we are glad to let you know that you can finance your business through equity Investment. Equity investments are a sure way to make a business grow and thrive. Fairmint equity, Carta, Stock Market Eye are just a few of the names that offer perfect solutions for founders who desire this. For instance, Fairmint makes it relatively easier to trade your equity to prospective investors by granting them the opportunity to obtain securities from the company website whenever. With this, you can raise capital with little or no hassle.
Most Popular types of Equity Investment
Here are some of the most common types of Equity Investment.
This kind of investment comes with a significant amount from the investors who are willing to provide the finances needed for startups. Many times, the few wealthy individuals or groups who are looking for a high return on capital Investments are very careful about the kind of business they will put their resources into.
The financial support that angel investors receive at the beginning of the business encourages innovation which translates into economic development.
Such investments are risky and generally do not represent more than 10% of the portfolio of angel investors.
Initial Public Offering (IPO)
This is a stock market launch in which a public offering takes place and investors purchase shares of a company. It is a kind of individual or retail investor. IPO can be used to generate new capital for companies. It also allows the monetization of the shares for the company founders and investors.
Unlike Angel Investor, venture capital does not make use of personal funds for investing in startups. It provides funds in order to be a part or shareowner of your business. The firms usually comprise a group of professional investors ready to put their resources into Investments of startups or growing firms. Many venture capital investors later transition into a mentoring approach to assist with investment growth.
Other types are Private Equity, Expansion Capital. Let’s dive into the purpose of this article- Why your business needs Equity Investment.
There are several sources to get equity capital, some of them are;
- Family and friends.
- Wealthy individuals (especially when you have a strong business growth potential).
- Public donations or crowdfunding (in exchange for a good or service.
- Venture Capitalists.
- Public Float (issuing securities to raise money such as shares from the public).
Benefits of Equity Investments to Businesses
This is especially great for businesses that are just starting up. Equity investment takes away the burden of having to repay loans and debts. You only have to share the company’s profits with your investors.
Having equity investments in business gives you access to contacts or people who are wealthy individuals in society who have connections with other potential investors.
Once investors see progress in the business they have invested in, they would be encouraged to do more. They provide additional funding to the business. You stand to enjoy future value from investors who would offer their business acumen to keep the business in peak condition
Less or No Risk
There might be little cash flow in the first month of business, there is room for less or no risk for cashing bank loan payments. You don’t have to be worried about a fixed monthly loan to repay.
No Credits problems
The interest rate on debt financing is usually too high, therefore, Equity financing is the best choice for funds when needing expansion for the business.
Asides from the fact that they invest their money in your business, many investors are well-versed in the business industry. Only people who have an understanding of how the market works will invest funds as shares in companies and other people’s businesses. This explains more than what you can gain monetarily from them, they also serve as guides and counsels for your growing business, they as well help you in designing growth strategies and key decision-making.
Regular and Stable Cash flow
A business run on equity investments will not run out of cash flow. Unlike a business run on debt loans, it reduces the money needed for business growth.
Equity investors have a long-term relationship in mind. They are not expecting an immediate return on their investments.
Does not need Collateral
Business ideas that would be funded on equity investments do not need any collateral like debt financing.
Because of the expectations of the investors In the business to deliver values, you as the business owner will work towards exploring growth ideas and executing them.