Capital Investment for Long Term Growth
What is Equity Investment?
Equity financing is the process of raising capital through the sale of shares. Companies raise money because they might have a short-term need to pay bills or need funds for a long-term project that promotes growth. By selling shares, a business effectively sells ownership of its company in return for cash.
Equity financing comes from a variety of sources. For example, an entrepreneur’s friends and family, Angel investors , High Net worth Individuals, professional investors, VCs or an initial public offering (IPO) may provide needed capital.
How does Equity Investment work?
Equity financing involves the sale of common stock and other equity or quasi-equity instruments such as preferred stock, convertible preferred stock, and equity units that include common shares and warrants.
A startup that grows into a successful company will have several rounds of equity financing as it evolves. Since a startup typically attracts different types of investors at various stages of its evolution, it may use other equity instruments for its financing needs.
For example, angel investors and venture capitalists—generally the first investors in a startup— favour convertible preferred shares rather than common stock in exchange for funding new companies because the former have more significant upside potential and some downside protection. Once a company has grown large enough to consider going public, it may consider selling common stock to institutional and retail investors.
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Sources of Equity Investment
HNI or Individual Investors.
These are often friends, family members, and colleagues of business owners. Individual investors usually have less money to invest, so more are needed to reach financing goals. These investors may have no relevant industry experience, business skills, or guidance to contribute to a business.
Often, these are wealthy individuals or groups interested in funding businesses they believe will provide attractive returns. Angel investors can invest substantial amounts and provide needed insight, connections, and advice due to their industry experience. Typically, angels invest in the early stage of a business’s development.
Venture Capitalists (VCs).
Venture capitalists are individuals or firms capable of making substantial investments in businesses that they view as having very high and rapid growth potential, competitive advantages, and solid prospects for success. They usually demand a noteworthy share of ownership in a business for their financial investment, resources, and connections. In fact, they may insist on significant involvement in managing a company’s planning, operations, and daily activities to protect their investment. Venture capitalists typically get involved early and exit at the IPO stage, where they can reap enormous profits.
The Fundraising Process We Follow
How is Valuation done?
Before any round of funding begins, analysts undertake a valuation of the company in question. Valuations are derived from many factors, including management, growth expectation, projections, capital structure, market size, and risk.
Investors each have their own method for valuating a business, but many use some of the same factors:
- Market size: The size of the market the business is in, in dollar value
- Market share: How much of the market the business makes up, like 0.10% of the overall market
- Revenue: An estimate of how much the company made and will make. This is market size multiplied by market share.
- Multiple: Generally an estimate used by the investor to give them an idea of the business’s value, like 10x or 12x the revenue
- Return: The increase in value, in percent form of how much is invested, based on estimates of growth in market share, market size, and revenue.
How We Offer
We Look For
Capital Destined to spur Growth
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