Equity financing is a process where a business raises funds by offering equity shares to investors

Understanding Equity Financing Equity financing is a process where a business raises funds by offering equity shares to investors. These shares represent ownership in the company, giving shareholders a claim on future profits, dividends, and in some cases, decision-making power. This financing approach is commonly used by startups, high-growth businesses, or companies with limited debt capacity. Key Components of Equity Financing 1. Equity Instruments o Common Shares: These are standard equity shares that offer voting rights and dividends. o Preferred Shares: These provide fixed dividends and priority over common shareholders during liquidation but typically lack voting rights. o Convertible Securities: Instruments that can be converted into equity shares under specific conditions, offering flexibility to both investors and issuers. 2. Investors o Institutional Investors: Venture capital firms, private equity funds, or mutual funds. o Retail Investors: Individual investors participating through public offerings. o Strategic Investors: Entities providing not only capital but also expertise, industry connections, or mentorship. 3. Mechanisms o Initial Public Offering (IPO): Companies raise funds from public investors by listing shares on a stock exchange. o Private Placements: Equity is sold to a select group of investors, typically institutional or high-net-worth individuals. o Rights Issue: Existing shareholders are offered additional shares, maintaining their proportional ownership.