Types of Equity Financing

Types of Equity Financing

There are many types of equity financing including public stock and private stock.

Public Stock

Companies that issue public stock have the ability to raise large amounts of capital from a variety of investors all over the world. There stock is usually traded on a regular basis on public stock exchanges such as the New York Stock Exchange (“NYSE”) or the “National Association of Securities Dealers Automated Quotations (“NASDAQ”). They are regulated by the Securities and Exchange Commission (“SEC”). A publicly held company is required by the SEC to publicly disclose its financial performance in detail on a quarterly basis. As with equity financing, their investors, own a portion of the company, share in the company profits and can have control over the company direction by utilizing their voting rights.

Private Stock

Private Stock companies that issue private stock have the ability to raise capital from a limited number of accredited investors in the world. There stock is not traded on a regular basis on the public exchanges. However, they are regulated by the Securities and Exchange Commission. Unlike a publicly held company, a privately held company does not have to disclose its financial performance to the public. As with equity financing, their investors, own a portion of the company, share in the company profits and can have control over the company direction by utilizing their voting rights.

Angel Investment

Angel Investment is a private equity investment which is generally raised from a small group of accredited investors (high net worth individuals). This group of investors varies dramatically, but could be professionals, business owners or business executives. They could invest on their own or through angel investment groups. These investors usually invest in early stage companies that have the ability to grow rapidly. They usually invest between $25K and $1M and actively participate in management. In general, these investors concentrate their investments in industries they are familiar with. They may have previously worked in the industry, invested in the industry or owned businesses in the industry. In general, these investors prefer to exit their investment in approximately 5 years.

Angels invest between $25K and $1M in early stage companies that have the ability to grow rapidly.

Venture Capital Investment

A private equity investment which is generally raised from institutional investment groups. These investment groups vary in size from $50M to $5B. These investors usually invest in technology companies that have some initial sales and have the ability to grow rapidly. They usually invest between $1M and $50M and can actively participate in management. In general, these institutional investors concentrate their investments in certain industries they believe have the greatest potential for growth. These investors prefer to exit their investment in approximately 7 years.

Financial Partner Research

Before you begin contacting prospective financing sources, it is a good idea to do your research. Understand what industries your prospective financing resource has invested in, what type of financial products they have to offer, what size investments they generally make, what their investment risk profile looks like, and what other services they can offer such as management support and business development support. Much of this information can be obtained through referrals from your CPA, attorney or bank, by researching financial resource websites, by contracting your industry association and by interviewing your prospective financial resource.

kavitha

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

Read also x