Question

For a start-up venture, what are the various equity financing types that can be used? Explain each type. ( 1 page answer )

Answer 1

Equity financing means exchanging a portion of the ownership of the business for a financial investment in the business. The ownership stake resulting from an equity investment allows the investor to share in the company's profits. Equity involves permanent investment in a company and is not repaid by the company at a later date.

For start-up venture , various equity financing types that can be used are:

Personal savings: Personal resources can include profit sharing or early retirement funds, real estate equity loans

Life insurance policies.Feature of many life insurance policies is that the owner's ability to borrow against the cash value of the policy. The money can be used for venture. It takes about two years for a policy to accumulate sufficient cash value for borrowing.

Home equity loans: A home equity loan is a loan backed by the value of the equity in your home. If the home is paid for , it can be used to generate funds from the entire value of the home. If the home has an existing mortgage , it can provide funds on the difference between value of the house and the unpaid mortgage amount.

Venture capital : Venture capital refers to financing that comes from companies or individuals in the business of investing in yound, privately held business. They provide capital to yound business in exchange for an ownership share of the business .

Angel investors: Angel investors are individuals and businesses that are interested in helping small busineses survive and grow . Their objective is more than just focusing on economic returns.