Access to Capital - Equity & Ownership
Access to Capital - Equity & Ownership
There are a few different approaches to financing a business through equity and ownership. This page will help you understand what equity financing is, how it can be used, and different types of equity financing, including seed & venture capital and angel investment. If you need more information on financial terminology please refer to the
Business & Financial Literacy page for additional resources.
What is equity financing?
Equity financing is a type of investment where a business owner receives investment capital in exchange for a percentage of ownership in their company. Some investors may want to be actively involved in the management and operation of the business so business owners must carefully weigh the need for capital investment against the cost of giving up some control over the business. The Council of Development Finance Agencies (CDFA) - Food Systems & Access to Capital White Paper provides more information and examples of equity financing.
How can equity financing be used?
Generally, capital raised through equity financing can be used for anything related to the management and operation of the business - operating capital, acquisition of land and buildings, new construction and renovations, and purchasing machinery and equipment. However, an investor may have specific requirements for how their investment in the company is used.
What else should I know?
Unlike debt financing, equity financing does not have to be repaid. However, investors may expect a high return on their investment in the form of profit and the original business owner may have to give up some control over the business.
Types of Equity Financing
Seed & Venture Capital
Seed Capital is an initial capital investment into a new business or project, typically for companies that are in their first year and therefore too young to secure funding from traditional sources. Investors often seek an equity or ownership position in the company or set a high rate of return (15-30%).
Venture Capital funds young or growing companies that are usually more established than the types that seed capital supports. Venture capitalists also take an active role in managing the company they are investing in and might provide assistance with product development. For more educational information please refer to:
Angel Investment
Angel investors are wealthy individuals who provide substantial private financing for emerging businesses. There are organized groups of angel investors at state and local levels, offering support to each other with the work and expertise needed to review business plans, source deals, monitor investments, determine future strategies, etc. The Angel Capital Association is working at the national level to expand and elevate this economic development tool.
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