Question

What are some of the alternative sources of equity capital for private firms (alternative to IPO)? Name at least three sources. What are (dis-)advantages to a private company of raising money from these alternative sources? Explain briefly.

Answer 1

Answer:-

The three of alternative sources of equity capital for private firms other than IPO are

1) Private placement - This method of financing is done by selling equity or debt to small number of private investors. The disadvantage of private placement is that it does not sell at discount relative to public stocks as there are few investors.

2) Crowdfunding - This method is by raising equity online through small investments by many investors. This ha become common among startup companies.

3) Refinancing- This method is done by restructuring the firm's debt by altering the interest rate and negotiating  loans terms. The debt is replaced by cash through refinancing.

The methods mentioned above do not give advantage that a firm can have by raising equity through IPO. The investors are very less compared to IPO and one finds difficult to get investors as the risk involved is higher.