Business Talk – Raise Capital by Giving Away Equity

Every company new, small or a corporation need to raise capital to meet their expense. Most businesses raise capital through bank loans, credit cards, taking loans from angel investor or borrowing money. There are companies which try to raise capital via equity.  Research is an important aspect before raising capital via equity. Companies raise capital via equity when they are not willing to raise capital through loans and not ready for IPO also. Therefore, such companies prefer to raise capital via equity through deals. Such equity deals help the company to have an access to business experts through investors. The company is not directly involved with business experts. The investors finance the business and help the company to grow.

raise capital via equity

Loans and credit cards are a benefit for small businesses as the owner does not need to share equity in a company. The investors will charge an interest for the amount of capital given; however, they will not have any say in the business of the owner. Therefore, the owner will not have to share profit also. All the owner needs to do is pay his interest on time and return the capital taken. However, in this case of raising capital through a loan, the owner of the business may have to pay high interest rates. This interest will be taken out from the earnings of the business.

When you are looking for ways to raise capital for your business, you can try to raise capital via equity instead of taking money on interest. To raise capital via equity you require investors who would be willing to put money in your business. The best way to raise capital via equity is to ask from family or friends. Make a good business plan explaining how they would profit, if you raise capital via equity, through the capital invested by them. A good presentation can lure investors to invest in your business. Tell them about raising capital via equity fund and the profits they can earn. If they like your plan and agree to invest capital with you, have a lawyer make a business contract for you. As per the capital they have invested, you need to give them profits.

You can also raise capital via equity from your savings and credit cards. However, this type of raising capital via equity should be undertaken only if you have money in your account to rotate all the time. Another way to raise capital via equity is to find a venture capitalist who will invest with you. A venture capitalist will invest in your business, if your business has potential or is doing well. And if there is a good return on investment made.  Venture capitalist may also ask for a large stake in return for providing you investment. Venture capitalists give lucrative offers by getting you resources, financial planning and management techniques. However, you will have to pay considerable amount of percentage to venture capitalists work on partner sharing or equity sales.

If your business is doing well, you can ask for investment from an angel investor. Angel investors will invest with you if they find your proposal really good. They will invest capital in your business in return of profits made on investment. Angel Investors are wealthy investors who give loans on profit sharing. These investors are very important for initial funding of a business project as it is difficult to get loans from the banks immediately.

One way to raise capital via equity is targeting potential employees in your company. Such employees become investors in the company on profit sharing bases, as per the percentage of investment they put in the company. This is one of the potential ways to raise capital via equity in a company. However, this way to raise capital via equity has some risks. Therefore, a good risk management plan and also contingency plan should be there, in case some unforeseen disaster takes place.

If your company is growing, you can take it public to raise capital via equity. Such a process is good to raise capital via equity; however, there is lot of risk involved. One should have a very good control on your company to take it public. Many companies prefer to stick to private equity instead of going public to avoid all the stress involved in managing a public limited company. Raising capital via equity through private equity involves giving good returns on investment made to the other company holding private equity. You may also have to share stock with the other company, with the company having the power to interfere in your business management. Companies prefer to raise capital via equity through private equity to avoid the stress involved in dealing a public holding company.

As a way to raise capital via equity, companies look for equity partners. The best way is to raise capital via equity through a company which works on almost the same lines and businesses as your company. This way you will not have differences in business policies. You can find the best ways to raise capital via equity through extensive research. Do not raise capital via equity with a company which is asking for a very high stake, as this will diminish your earnings. Also, do not try to raise capital via equity with a company which has a long term proposal. The best way to raise capital via equity is to look for companies which give you the best deals.

One should always consult an attorney before confirming deals to raise capital via equity as such deals will have lot of causes related to profit sharing and financial agreements. Raising capital via equity requires companies to have legal agreements. The company may also have to give a large stake in return for the investment made by the investors. When a company raises capital via equity the investors can interfere with the way the company works. Raising capital via equity should be taken when there is a high growth possibility.