Question

What is equity funding? Discuss how businesses make equity investments in other start-up firms. Be specific.

Answer 1

Equity funding is generation of funds in exchange of the equity shares of the company and these kind of exchanges are leading to loss of control on the part of the owners with exchange of the capital

This type of equity fundings are helpful for those companies who are not wanting to take exposure into debt financing because those debt financing will be having fixed rate of the payments and Those can cause a significant threat to going concern of the organisation and they can well have a cost of financial distress and a cost of bankruptcy as well so these companies who do not want to pose a threat to their existence will be preparing for the equity financing.

These equity financing can be arranged through venture capitalist or Angel investors or peer to peer financing when it comes to internet financing.

Business will make equity investment into another startups through various kinds of methods like partial acquisition of startups and it can also be trying to to provide it with seed capital when the startup is a small business or it can even opt for joint venture with those budding companies or it can also be opting for complete sell and buy hof those startup company.