Thursday 10 April 2014

EQUITY FINANCING GUIDE




Equity Financing Guide
  There are various types of equity financing, Here are some of the more common types of financing you might come across, and how each of them work. Each entrepreneur has different needs, and so it is up to you to determine what is right for you.

Seed Capital - This is often referred to as the first round of financing. Seed capital funding usually occurs in the first stages of a new business, perhaps where the project has yet to begin. Angel Investors usually play a key role in this stage, as the higher risk/reward attracts these investors more than Venture Capitalists, where a group decision will usually require an evaluation of activity to date, such as financial data. Generally, seed capital is not a large amount of money, usually slightly higher than basic grants and loans: this type of equity financing falls in the 10-30k range.

Venture Capital - This type of investment usually follows as the next step. It involves significantly more money and virtually always requires the investors to be involved in part of the overall running of the company and its decision making process. The average range for this step is often in the 6 figure range, and is invested as a type of Private Equity. Obviously, the overall aim is that the investors will generate a good return via the growth of the company and ideally the eventual Initial Public Offering (IPO) of the company. Venture Capital Investments are usually made in exchange for a percentage of the company's shares, which will provide a strong return on investment if the company is successful.

Other types of investment funding methods for businesses in their later stages include Hedge Funds and Collective Investments.


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