Owning Your Own Business: 3 Kinds of Equity Financing

Owning your own business can be extremely rewarding in a number of different ways. In order to start your own business, you may need to consider equity financing. Here are a few of the most popular kinds of equity financing that are available.

1. Venture Capital

Venture capital is one of the most effective types of equity financing that you can get involved with. The process of acquiring venture capital is going to require you to work with private investors. These venture capital firms are willing to invest large amounts of money into companies that look promising. If your business has a winning idea, there will most likely be a line of venture capital companies waiting to finance you. These venture capital companies are going to ask for a certain percentage of ownership in the business in return for the money that they are investing. When you are considering working with a venture capital company, you will want to make sure to negotiate a fair contract for you and your business. You do not want to give up too large of a percentage of your business. Venture capital can get things moving very quickly because they have large amounts of money to invest and you will not have to jump through the hoops that are involved with getting a traditional loan.

2. IPO

Another type of equity financing that you might want to consider is an initial public offering. Through an initial public offering, you will offer shares of ownership in the company to the public. Initial public offerings have been used to generate millions of dollars in very short periods. When your company initiates an IPO, you are going to have to go through a lengthy process with the SEC. Your company will have to file many different documents, and you will have to work in conjunction with an investment bank. The investment bank will be in charge of bringing your stock to the public and finding investors. When you take this route, you want to be careful that the costs of going public do not eat into the money that you can generate. Many estimates say that it will take at least 20 percent of the money that is generated from an IPO just to cover the costs associated with it.

3. Partnership

Another type of equity financing that you might want to consider is a partnership. If you are lacking capital, you can potentially find the capital that you need by acquiring a partner. There may be an individual with enough money on hand to finance a large portion of the business for you. He or she may want to go into business with you and take a partnership role. If the business has enough potential, you will not mind giving up half of it in order to get it off of the ground. Half of a successful business is better than having ownership of a business that never got started.