Its no easy feat to finance a business, let alone transform it with ideas, expertise, or innovation. While you can bootstrap for a while, giving your enterprise competitive tangibility requires additional funding. With the money rolling in, you can build a stellar service or product, but is that all how equity investment can transform your business?
Offering equity to investors or even employees is called crowdfunding, and this guide shows you what’s in store for your business when choosing to take this route. Many companies like Fairmint, Capyx or Capbase grant their customers the opportunity to build equity investment portfolios with their tools. Moreover, partnering with an investment house like Fairmint gives your business a better chance of getting the right investors when looking to sell equity. If you run a business that requires investment capital, read on to get an overview of your options.
How Do Equity Investments Help Businesses?
In essence, equity means ownership, and equity investments translate into capital infusions in exchange for percentages of your business. There are also rights to company decision voting and dividends or a share of profits attached to equity. When your enterprise receives much-needed funds, you can direct them to brand marketing or research and development.
Businesses need funds for growth, and equity investments is one way for private investors to chip in. Startups sometimes face a lack of financing, especially at the cradle stage, and many leading enterprises utilized equity investments during their years of formation. The size of stake an investor gets is equivalent to the number of shares they buy.
Investors perform market research into the best start-up or established business thats offering equity investment. Mission Related Investment or MRI tools are deployed other times, and the investor may approach a company with an offer to invest. Fairmint gives equity investors access to portfolio business, and they can buy shares straight from their website. The site provides a platform for engagement between interested businesses, investors, and other equity investment partners.
Is Offering Business Equity a Secure Way to Raise Investment Funding?
You run a business or have an enterprising idea but have no funds to transform it into a profitable reality. Equity investment is one of the common ways your business can raise capital, simply by selling shares to inside or outside investors. However, crowdfunding isn’t right for every situation or organization, and it’s prudent that you proceed with care. You’ll be sharing control and profits of your business with strangers, and that can be a tough decision to arrive at.
The two types of business equity investment include;
Equity Financing:
You sell your businesss shares to outside investors so that you can fund development or expansion projects.
Equity Compensation:
You offer your employees a percentage of your businesss profits in exchange for a lower or no upfront salary.
Other than equity, your business can take debt financing, a business loan from a financial service provider, or an investor. While each option has its benefits and downsides, equity investment leaves your business debt-free and doesn’t rely on one investor. Your business also gets the freedom to tap into new consumer bases.
Equity compensation trades off on the skills your business needs for transformation, offering shares in return for getting engineers, programmers, or marketers on board. It’s essential to consult with an investment professional before making such an offer that lessens the financial burden of paying upfront salaries.
Is Equity Good for Business?
One of the significant benefits of equity investment for your business is eliminating, reducing, or consolidating debt. Instead of a bank as your business partner, youve got more vested investors with stakes and interest for your enterprises wellbeing. Infusion of capital from an angel, venture capitalists, or other private equity buyers will help grow your business, increasing its worth and value or each investors stake.
Equity investment also reduces the personal risk of owning your business. If the company folds, you wont be required to repay investors as you would with a bank or file bankruptcy to reorganize debts. This is a long-term solution that will help your business with capital and expertise for expansion or transformation.
The Impacts of Equity Financing in Business
Equity financing raises funding for your business through the sale of new shares and, as such, dilutes the existing shareholder holdings. While there is a positive impact on a companys profitability, net revenue will be divided amongst a larger number of shareholders via dividends.
However, on your businesss balance sheet, funds raised through equity investment impact activity cash flow with the common stock increase at par value. In most cases of equity financing, levels of management interests are offered in exchange for upfront capital.
Conclusion
Equity investment can be a great way to transform your business. Though it requires significant time and resources, many benefits come with an equity partnership.
There is no need to worry about going bankrupt or huge loans upfront with equity investing because investors invest when businesses have been established. The risk is more on an investor than what the entrepreneur has invested personally. That creates less pressure from startups since people will be getting paid regardless of how well your business does during its early stages.
