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Written by Editor
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Monday, 08 August 2005 |
Equity Financing
- Most small businesses use limited equity financing
- Additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues
- Most common source of professional equity funding comes from venture capitalists—institutional risk takers, may be groups of wealthy individuals, government-assisted sources, or major financial institutions
Most venture capitalists specialize in one or a few closely related industriesOften seen as deep-pocketed financial gurus looking for start-ups that they can invest their money in, but they usually prefer three-to-five-year old companies that have a potential to become major regional or national companies and return higher-than-average profits to their shareholdersMay scrutinize thousands of potential investments each year and then only invest in a fewPossibility of a public stock offering, quality management, a competitive or innovative advantage, and industry growth are all major concerns to venture capitalistsVenture capitalists generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategyRelinquishing some decision-making and some of potential for profits are main disadvantages of equity financingIf you believe that venture capital financing is the ideal source of funding for your business, you can contact these investors directly, even though they are normally known to make most of their investment through referrals |
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