How to Do Equity Funding
Equity funding avoids interest costs but gives investors a say in how you run your business. You may be able to get equity investors from private contacts, venture capital funds or an initial public offering, or IPO. Small startups may identify so-called "angels" to contribute startup equity funding against a share of the company. Larger businesses with strong growth prospects may be able to attract venture capital. After a business is established and generates profits or has viable prospects, an IPO may raise substantial equity capital. Businesses that have short operating histories may not be able to qualify for loans --- equity financing may be their only option.
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Instructions
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If your company is a startup with little operating history, identify angels who can invest in your company. Contact people who know you personally and who believe that you can make a success of this particular venture. Create a business plan that details how an investor might help the company succeed and recover his investment. Be prepared to offer a substantial share of the company in return for equity funding that allows the company to expand operations. Make sure that your own contribution, called sweat equity, is valued on the same basis as the financial contributions of your angel investors.
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If your company has an operating history and expects to generate elevated profits in the future, contact sources of venture capital for equity funding. Prepare a business plan showing how the present injection of substantial equity funding will benefit the company and generate excellent returns for investors in the future. Support your business plan projections with independently verifiable data such as market size and market growth rates. Be prepared to offer control of the company in return for funding that allows you to take the company to the next level.
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Plan for an IPO if your company has a lengthy operating history and is either generating substantial profits or rapidly increasing revenue that will result in elevated profits in the future. Hire a financial adviser who will guide you through the regulatory requirements and the preparation of your prospectus for selling shares. Make sure that your claims for revenue, expenses and income are solidly based on verifiable sources to avoid future problems. Check that there's enough interest in the market to ensure a successful IPO. Operate the company to meet the projections of the IPO to make sure that your own shares retain the planned value.
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