What Are the Different Types of Equity Financing?

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A profitable company is one that’s making money. If you’re not making money, then it’s only a matter of time until your funds run dry. 

Equity financing is all about raising capital one way or another. Some companies sell shares of stock in order to raise interest and money. Others utilize the internet to connect with thousands of individual investors around the world. 

Here are six of the different ways to raise money for your business expansion and other endeavors. 

1. Crowdfunding 

Asking people to invest or contribute money to your business or idea is called crowdfunding. It’s one of the mainstream equity financing options that has gained in popularity on the internet for smaller projects. 

Some of the different crowdfunding platforms include Kickstarter, Patreon, and Indiegogo.

In 2020 alone, over $17.2 billion was generated in North America. However, the average amount raised per campaign was only $824, so it’s not the most consistent option. 

2. The Stock Market

When a business decides to go public, it opens up its shares to everyone willing to invest. This is called an initial public offering, or IPO. 

A company going from private to public opens it up to the stock market. There are multiple ways for people to invest in stocks, such as apps and easy trading platforms. 

3. Business Angels

Angel investors are wealthy people who look for a potentially profitable business to put money into. They see it as a business investment, as they always demand a share in the profits. 

More often than not, they choose a new business venture over ones that are already successful. A popular example of angel investors is Shark Tank, a show where a few wealthy individuals televise entrepreneurs pitching ideas to them. 

4. Mezzanine Financing 

Mezzanine financing is a type of loan where the business owner treats it like regular debt. They retain full control of their company, instead of the lender taking shares. However, failure to repay the loan turns it into equity. 

5. Venture Capital

Certain firms help to fund small businesses much like an angel investor. The difference is that angel investors use personal funds, while a Venture Capitalist firm has a dedicated fund specifically for startups. 

6. Direct Public Offering

As opposed to an IPO, a direct public offering doesn’t have to go through investment banks or other middlemen. Your company decides the terms, including minimum investments and the time window of your offering. 

Some of the key benefits of a direct public offering include the ability to offer stock options for your employees and avoiding costs associated with an IPO.

Protecting Your Future With Equity Financing

It’s not always easy to raise money when you’re starting from the ground up. Not only is equity financing a normal part of running a business, but it’s expected to have multiple investors from different sources. 

Before your company goes public, crowdfunding can be a great option to build your brand and collect funds. Angel investors are also a big boon for your business. 

Need help managing your equity financing? Contact us and schedule a consultation to see what we can do for you.