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Equity financing simply means selling an ownership interest in your business in exchange for capital. The most basic hurdle to obtaining equity financing is finding investors who are willing to buy into your business. But don’t worry: Many small business have done this before you.
The amount of equity financing that you undertake may depend more upon your willingness to share management control than upon the investor appeal of the business. By selling equity interests in your business, you sacrifice some of your autonomy and management rights.
The effect of selling a large percentage of the ownership interest in your business may mean that your own investment will be short-term, unless you retain a majority interest in the business and control over future sale of the business. Of course, many small business operators are not necessarily interested in maintaining their business indefinitely, and your personal motives for pursuing a small business will determine the value you place upon business ownership.
The bottom line usually boils down to whether you would rather operate a successful business for several years and then sell your interest for a fair profit, or be repeatedly frustrated in attempts at financing a business that cannot achieve its potential because of insufficient capital.
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You and your partners can raise equity funds in several common ways:
While you do have a broader base of individuals’ creditworthiness to tap into if you consider debt financing, the owners still largely determine the business’s creditworthiness.
