Are you ready to Raise Funds?

blog

Equity finance and how does it work?

An entrepreneurs friends and family, investors, or an initial public offering are all possible sources of equity financing (IPO). An initial public offering (IPO) is a process by which private corporations offer shares of their company to the public in a new stock issuance. A firm can raise funds from the general public by issuing public shares. IPOs raised billions of dollars for industry heavyweights like Google and Meta (previously Facebook). While the word "equity finance" usually refers to the funding of publicly traded corporations, it can also refer to private company financing. In most jurisdictions, the equity-financing process is overseen by rules established by a local or national securities body. This type of legislation is largely intended to safeguard investors from unscrupulous operators who may solicit funds from naive investors and then disappear with the monies. As a result, an offering memorandum or prospectus is frequently used in conjunction with equity financing. The status of the financial markets in general, and equity markets in particular, has a substantial impact on investor appetite for equity financing. While a consistent pace of equity financing indicates investor confidence, a flood of financing could signal overconfidence and a market top. For example, before the "tech crash" that overtook the Nasdaq from 2000 to 2002, IPOs by dot-coms and technology businesses reached record levels. Due to investor risk aversion during such periods, the pace of equity financing often slows dramatically after a lengthy market correction.

When is it appropriate to employ equity financing?
Equity financing isnt suited for every company, and its always a good idea to look into all of your funding choices. Here are a few circumstances in which it could be useful.
Youre a startup with no track record or collateral to receive a bank loan. This is frequently the case with tech start-ups, which may have significant intellectual assets but limited physical assets. They often have expenses to cover at the pre-revenue stage, such as research and development. If you require a substantial sum of money to get your business started, equity investment may be your best or only alternative.

What is the process of obtaining equity funding?
As previously said, equity financing can be employed at many stages of a companys development, whether its just getting started or looking to expand (including acquisition). To grow from a start-up to a successful firm, some businesses will raise many rounds of equity capital from various types of investors. When you raise equity financing, the investor will get ownership of a portion of your business. However, by accepting investment, you should be able to grow your company and make it more profitable. Youll get not only a cash injection from the right investor but also the skills and contacts you need to move your company ahead. According to a study conducted by Beauhurst in 2019 on scaleups, organizations with stronger turnover growth are more likely to have acquired equity investment.